Regardless of country and continent, all individuals must report their income and expenses to the relevant departments for tax purposes.
Different countries have varying tax rules, laws, tax rates, and income heads for defining revenues from different sources.
For instance, the income from salary is for employed individuals, and salary is their main source of income. Income from property is for the people who have rented their property and get revenues.
Capital gains are for those who sell property, plant, or any fixed assets resulting in a profit as different from market value and book value.
Similarly, investors in stocks and shares are entitled to report their dividend incomes and pay a certain amount of tax on their dividend income.
In this article, we will be talking about qualified dividends and capital gain tax for the U.S tax filers. We will answer questions about qualified dividends and how can the worksheet for reporting dividends and capital gain can be downloaded. So let’s get into it.
What Is Qualified Dividend?
A qualified dividend is the Internal Revenue Code assigned to certain types of dividends that are taxable as per IRS. A qualified dividend is described as a dividend from stocks or shares taxed on capital gain tax rates.
These tax rates are lower than the income tax rate on ordinary or unqualified dividends. The tax rates on ordinary dividends are the same as the tax rates on income from salary or wages.
How Are Qualified Dividends Described For Tax Purposes?
The definition and description of a Qualified dividend depend on the company in which the tax filer has invested.
Besides, the period for which stocks have been held is also factored in. So, we can say that there are three criteria to declare an ordinary dividend as a qualified dividend:
- Dividends must be from the shares of domestic corporations or certain qualified foreign corporations.
- The tax filer must have kept the shares for a minimum holding period as defined by the tax authority.
- An additional requirement is that the shares must be unhedged. It means that there have been no short sales, put, calls, etc., associated with the shares for the holding period as reported by the tax filer.
Calculation For Holding Period Of Stocks and Shares
The calculation of the holding period for stocks and shares can confuse many. Therefore, we have tried to simplify it.
The holding period is the total time during which the tax filer directly held the shares, or had them in a mutual fund. The number of days are calculated must include the day funds were disposed of. It should not include the day when the stocks were acquired.
The holding period requirements for different stocks and shares are as follows:
Stock –If a tax filer has directly held the shares, he must have held the unhedged shares for a minimum of 61 days out of a 121-day period starting 60 days prior to the ex-dividend date.
In the case of preferred stocks, the tax filer must have held the shares for a minimum of 91 days out of a 181-day period starting ninety days prior to the ex-dividend date.
Hedge Funds – minimum 61 days out of a 121-day period starting 60 days prior to the ex-dividend date for unhedged security. The tax filer must have held the applicable share for 61 days out of a 121-day period.
For preferred stock, the holding period must be a minimum of 91 days out of a 181-day period starting ninety days prior to the ex-dividend date.
What Is Capital Gain?
Capital gain(or losses) can be defined as the profit on the sale of fixed assets for more than your adjusted basis.
The capital gains are taxed at the same rates as ordinary income rates. The difference is treated as a capital loss if you sell a fixed asset for less than the adjusted basis. However, the long-term capital gains are subject to lower tax rates.
Qualified Dividends and Capital Gain Tax
Now, what is Qualified Dividend and Capital Gain Tax?
IRS defines short-term and long-term capital gains. It can be defined as the capital gain tax rate for long-term gains. Long-term capital gain is defined as when you have held an asset for more than one year before disposing of it; the gain or loss will be treated as long-term.
The qualified dividends and long-term capital gains are taxed at a rate lower than the ordinary income tax rates. Similarly, if investment in stocks or mutual funds meets all requirements in addition to the minimum holding period, the dividend is taxed on the long-term capital gain tax rate.
Qualified Dividends and Capital Gain Tax Rates
Here are the tax rates for Qualified Dividends and Capital Gain:
| 2021 Qualified Dividend Tax Rate | For Single Taxpayers | For Married Couples Filing Jointly | For Heads of Households |
| 0% | Less than $40,000 | Less than $80,800 | Less than $54,100 |
| 15% | $40,401 – $445,850 | $80,801 – $ 501,600 | $54,101 – $473,750 |
| 20% | $445,851 or higher | $501,601 or more | $473,750 or more |
| 2022 Qualified Dividend Tax Rate | For Single Taxpayers | For Married Couples Filing Jointly | For Heads of Households |
| 0% | Less than 41,675 | Less than 83,350 | Less than $55,800 |
| 15% | $41,675 – $459,750 | $83,351 – $517,200 | $55,801 – $488,500 |
| 20% | $459,751 or more | $517,201 or more | $488,501 or more |
Qualified Dividends and Capital Gain Tax Worksheet
The worksheet is part of Form 1040 which is mandatory for every individual tax filer as well as joint filers. The worksheet has 27 lines, and all fields must be filled according to relevant information. Tax filers with qualified dividends and capital gains have to fill the relevant worksheet. It’s Line 11a of Form 1040.
You can check the sample of the worksheet here:
Qualified Dividends and Capital Gain Tax Worksheet
How To Download Qualified Dividends and Capital Gain Tax Worksheet?
Since the worksheet is part of Form 1040, it can be downloaded from the official website of the IRS. It’s very simple to download the form in these simple steps:
- Visit the official website of IRS.gov.
- Go to Tax Forms
- Download the relevant form(Form 1040) in this case.
FAQs
Who Needs the Qualified Dividends and Capital Gain Tax Worksheet?
No taxpayer entitled to the dividend income on stocks or mutual funds held is exempt from filing the Qualified Dividends and Capital Gain Tax Worksheet. The dividend receivers can fill the worksheet instead of Schedule D.
Where do I Send the Qualified Dividends and Capital Gain Tax Worksheet?
The worksheet is a part of Form 1040 that is mandatory for all the tax filers. Therefore, you will fill out the worksheet and send it along with your Form 1040 before the due date.
What are the Qualified Dividends and Capital Gain Tax Worksheet for?
The purpose of the Qualified Dividends and Capital Gain Tax Worksheet is to report and calculate tax on capital gains at a lower rate(applied for long-term capital gains(losses)). Every income category must be calculated separately because the ordinary tax rate is not applied to the qualified dividends.
Do other Forms accompany the Qualified Dividends and Capital Gain Tax Worksheet?
Form 1040, Form 2555, and Form 2555-EZ are closely related to the Qualified Dividends and Capital Gain Tax Worksheet. The information reported in these forms is required for filing the worksheet.
How Do I Fill Out The Qualified Dividends and Capital Gain Tax Worksheet?
Read the instructions and carefully fill out the worksheet. The worksheet has 27 lines representing different information asked by the IRS.
The tax filers are required to fill all the lines by doing calculations and extracting information from other forms. You must have all the necessary forms when filling out the worksheet for quick access to the required information.
Wrap Up
We have discussed everything related to the dividends, qualified dividends, and capital gains from a tax perspective. Besides, we have tried to cover everything necessary to be known by tax filers when they opt to fill the Qualified Dividend and Capital Gain Tax Statement instead of Schedule D during tax return filing.
