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Tax Treatment of Dividends Under the 2003 Tax Cut: Fact Sheet, June 11, 2003 1 (June 11, 2003)

handle is hein.tera/crstax0104 and id is 1 raw text is: Order Code RS2154' June 11, 200 CRS Report for Congress Received through the CRS Web Tax Treatment of Dividends Under the 2003 Tax Cut: Fact Sheet Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary While ordinary and preferred stock dividends, along with some foreign dividends, are eligible for dividend relief in the form of a lower tax rates, certain dividends are not eligible. Dividends retain their original character if received indirectly through mutual funds and real estate investment trusts and are eligible. Dividends which are already eligible for tax preferences and held in pensions or IRAs are not eligible. This fact sheet will not be updated. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (H.R. 2, P.L. 108-027) reduces the individual income tax rate on certain dividends and on capital gains to 15% from 2002 through 2008 (5% through 2007 and 0% through 2008 for individuals in the two lower tax brackets). The purpose of this fact sheet is to explain what types of dividends, in addition to ordinary dividends on common stock received directly by individuals, are eligible for the lower rate. Eligible Dividends Ordinary dividends, dividends on preferred stock, and dividends from qualified foreign corporations are eligible. Stock must have been held at least 60 days out of the 120-day period beginning 60 days before the ex dividend day.1 Qualified foreign corporations include those traded on U.S. markets and those that do not trade but whose income tax treatment falls under a treaty with the U.S. that provides for an exchange of information, with exceptions listed below. Dividends that are received through regulated investment companies (RICs), commonly referred to as mutual funds, are eligible for the lower rate. Note, however, that 1 The ex dividend day is the day the stock trades without an announced dividend and is normally two business days before the record day (the date when the company determines who owns the stock) to account for settlement lags. A person who buys the stock the day before the ex dividend day will receive the dividend, while a person who buys the stock on the ex dividend day will not. Congressional Research Service *** The Library of Congress

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