In 2003, the federal tax rate on corporate dividends paid to individual taxpayers was reduced to a maximum rate of 15 percent. This reduction is effective through December 31, 2010.
As you are aware, dividends are taxed twice, once at the corporate level and then again at the individual taxpayer level. Dividend-paying companies and their shareholders are, therefore, penalized in relation to many other types of investments. Reducing the tax on dividends was intended in part to address this inequitable double taxation.
If the reduced dividend tax rate expires in 2010 as currently scheduled, shareholders receiving dividend payments will likely be subject to higher tax rates, negatively impacting their investment returns.
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