Question

Lacy is a single taxpayer. In 2019,her taxable income is $41,400. What is her tax liability in each of the following alternative situations.
B. Her $41,400 of taxable income includes $4,200 of qualified dividends

Answer 1

The tax status of Lacy is Single.

Here Lacy has normal income of 37,200 and qualified dividends of $ 4200 totaling to $ 41,400. Normal income would be taxed at slab rates while qualified dividends would be taxed at preferential rates.

Tax on Normal income

Lacy falls under slab of $ 9700- $39,475.

Tax payable = $ 970 +12% of excess above 9700 = 970 + 27500*12% = $ 970 +3300 = 4270

Tax on qualified dividends

The schedule for net capital gains and qualified dividends has to be used in this scenario. Since the total income falls in the slab of $39,375 to $434,550, the tax rate applicable here shall be 15% for income in excess of $ 39,375.

Tax payable = 4200 – (39375-37200)*15% = 303.75

Total tax payable = 4270 + 303.75 = $ 4573.75