Final answer:
The statement that qualified dividends are taxed at 0%, 15%, or 20% rates is true. Qualified dividends benefit from lower tax rates compared to ordinary income. It's part of a broader progressive taxation system, and the rates depend on the taxpayer's income level.
Step-by-step explanation:
The statement that qualified dividends received by individuals are taxed at either a 0 percent, a 15 percent, or a 20 percent preferential rate is true. Qualified dividends are indeed subject to lower tax rates than ordinary income, with the rate depending on the taxpayer's income. Specifically, qualified dividends are taxed at the capital gains tax rates of 0%, 15%, or 20% based on different income thresholds. This preferential treatment is designed to encourage investment by providing a lower tax rate for certain dividend income.
It's important to note that not all dividends qualify for these lower rates. Only those dividends that meet specific criteria set by the IRS are considered qualified. Moreover, for taxpayers with very high incomes, an additional 3.8% net investment income tax may apply to their qualified dividends, effectively increasing the top rate to 23.8%.
The taxation of qualified dividends is part of a broader progressive taxation system in the United States. Progressive taxation is where the rate of taxation increases for individuals who earn more money, as seen with the various income tax brackets outlined by the IRS for different earnings levels.