Dividend taxation is typically capped at what rate for qualified dividends?

Qualified dividends are generally subject to a maximum tax rate of 20%, which is the correct answer to the question. Qualified dividends are those paid by U.S. corporations or qualified foreign corporations on stocks that have been held for a specific period, and they must meet certain requirements set by the Internal Revenue Service (IRS).

The significance of the 20% cap lies in the favorable treatment it provides to investors compared to ordinary income tax rates, which can be much higher depending on an individual's tax bracket. This preferential rate is intended to encourage investment in stocks and incentivize long-term holding of equities by reducing the tax burden on dividends.

While most qualified dividends are taxed at a lower rate of 0% or 15% for taxpayers in the lower tax brackets, the maximum rate recognized for high-income individuals is indeed 20%. This structure reflects the tax policy aimed at stimulating economic growth through investment in corporate equity.