University of Central Florida (UCF) FIN2100 Personal Finance and Investments Final Practice Exam

Dividends are distributions of a corporation's earnings to its shareholders, typically made from profits that have already been taxed at the corporate level. This means that the money used to pay dividends has indeed come from after-tax earnings.

When an individual receives qualifying dividends, these are subject to taxation once again, but at preferential rates that are generally lower than ordinary income tax rates. This concept of double taxation—where income is taxed first at the corporate level and then again at the individual level—explains why it is true that qualifying dividends are taxed again when received by an individual.

Moreover, the existence of these lower tax rates on qualifying dividends incentivizes investment in dividend-paying stocks, making this a crucial aspect of understanding personal finance and investments. Therefore, the statement is accurate in both the acknowledgment of the source of dividend payments and the subsequent taxation they face upon receipt.