Question: Do I owe tax on dividends that I don’t withdraw from my brokerage account? T.P., Oak Park, IL
Answer: Yes. Qualified dividends from a taxable brokerage account are taxed at capital gain rates whether they are paid out or reinvested. This includes dividends from domestic corporations and certain foreign corporations if you meet a holding period requirement. The maximum capital gains rate is 20%, but most taxpayers will pay 15%. The qualified dividend amount is reported on the Form 1099 you receive for the year.
Tip: Similarly, capital gains are recognized on sales of appreciated shares even if the proceeds are reinvested. Short-term gains are taxed at ordinary higher income rates. This information is also reported on Form 1099.