What is a Dividend Tax?

A dividend tax is a type of income tax that is assessed on dividend payments made to stockholders. In many nations, tax regulations require that the amount of the tax be withheld from the payments issued to the investors, with the issuing corporation considered responsible for forwarding the collected tax to the appropriate tax agency. The exact table used to calculate dividend taxes will vary, depending on how the tax agency in question classifies the income generated from shares of stock.

In many nations around the world, the dividend tax is calculated using the same basic table that is utilized for ordinary income. When this is the case, any dividend payments are subject to taxation using the same formula as income earned from any employment position. Since the stock issuer is often responsible for calculating and withholding the dividend tax from the payments made to shareholders, a breakdown of the deductions and withholding is normally provided along with the dividend check. If the shareholder has opted to receive the payment electronically, it is not unusual for a hard copy of the withholding history to be supplied after each disbursement, with an annual recap provided just prior to tax season.

There is some degree of controversy regarding the payment of a dividend tax. Those who oppose this type of taxation often take the stance that if the corporation has already paid taxes on its earnings, there is no need for the investor to pay even more taxes, since that corporate tax burden was accounted for prior to calculating the amount of the dividends extended to investors. Proponents of the dividend tax note that even though the issuing corporation accounted for the gross profits and paid corporate taxes, the dividends still represent an increase in income for investors that should be subject to taxes in a manner similar to bonuses or commissions issued to employees.

There are some jurisdictions that draw a distinction between the dividend tax and the taxes paid on income earned through employment. When this is the case, the schedule or table used to calculate the taxes will be different. In some cases, the dividend may not be taxed at all, if the total amount for the tax year is under a certain amount. Since different jurisdictions manage the task of assessing tasks on dividend payments differently, consulting with a tax professional will often make the task of properly accounting for the dividend income much easier.