What tax rate applies to Mary's qualified dividends if her income is $40,000 per year?

To determine the tax rate that applies to Mary's qualified dividends given her income of $40,000 per year, it's important to understand how qualified dividends are taxed based on income levels.

For the tax year 2023, the tax rates on qualified dividends are structured into different brackets. Individuals in the lower income brackets, specifically those with taxable income up to $44,625, are subject to a 0% tax rate on their qualified dividends. Since Mary's income of $40,000 falls well within this threshold, she is eligible for the 0% rate on her qualified dividends.

This 0% rate is designed to provide tax relief for individuals with lower incomes, allowing them to keep more of their investment earnings. As taxable income increases beyond the specified limits, the tax rate on qualified dividends can rise to 15% or higher, but that is not applicable to Mary's situation given her current income.