General Securities Representative (Series 7) Practice Exam

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What is the maximum federal tax rate for individual dividends?

  1. 15%

  2. 20%

  3. 25%

  4. 30%

The correct answer is: 20%

The maximum federal tax rate for qualified dividends is indeed 20%. This rate applies to individuals in the higher income tax brackets. Qualified dividends are typically those paid by U.S. corporations or qualified foreign corporations on stock that has been held for a specific period. In addition to the 20% rate, high-income earners may also be subject to an additional 3.8% Net Investment Income Tax (NIIT), which can result in a total tax rate on dividends of up to 23.8% for some individuals. However, the question specifically asks about the maximum federal tax rate on individual dividends without any additional considerations, making 20% the correct answer. Other rates listed, such as 15%, 25%, and 30%, do not represent the current maximum federal tax rate for dividends. The 15% rate was previously applicable to certain income levels but has been surpassed by the current maximum. The 25% and 30% rates are not associated with qualified dividends under current tax laws.

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