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Generally, there is no tax on stock dividends issued by a corporation. The distribution of a stock dividend by a corporation does not normally result in a taxable situation.
Stock Dividends Subject to Tax
There are a few exceptions that will cause a stock dividend to become taxable. These include:
Stock Dividend vs. Cash Dividends
A stock dividend is a distribution of additional shares of the corporation in proportion to individual’s percentage ownership. A cash dividend is one that is paid to all shareholders of record for the corporation on the date the dividend is payable. Cash dividends are subject to a maximum 15 percent tax based on the shareholder’s income tax bracket.
Stock Dividends Subject to Tax
There are a few exceptions that will cause a stock dividend to become taxable. These include:
- Converting the dividend to cash.
- Receiving a distribution of preferred stock shares.
- Having a preference for cash or preferred shares instead of common shares.
Stock Dividend vs. Cash Dividends
A stock dividend is a distribution of additional shares of the corporation in proportion to individual’s percentage ownership. A cash dividend is one that is paid to all shareholders of record for the corporation on the date the dividend is payable. Cash dividends are subject to a maximum 15 percent tax based on the shareholder’s income tax bracket.
