How are dividends taxed for individuals?

Dividends received by individuals are subject to different tax treatments depending on whether they are classified as qualified dividends or ordinary dividends. Qualified dividends are generally those that meet specific criteria, such as being paid by a U.S. corporation or qualified foreign corporation on stock held for a specific period.

The correct treatment for qualified dividends is that they are taxed at the long-term capital gains tax rates, which are typically lower than ordinary income tax rates. This preferential treatment encourages investment in stocks and provides an incentive for individuals to hold onto their stock investments for longer periods.

In contrast, ordinary dividends, which do not meet the qualified requirements, are taxed as ordinary income at the individual's marginal tax rate. This is a higher tax rate compared to the capital gains tax rates applied to qualified dividends.

While other options may touch on aspects of dividend taxation, only the description of qualified dividends being taxed at capital gains rates accurately reflects the current U.S. tax law regarding dividends, highlighting the preferential treatment afforded to qualified dividends specifically.