I have searched for this question for a while but could not find the answer.
What I know is equity ETFs distribute the dividends that are from invested companies as follows.
Microsoft dividends -> SPY -> investors.
In this situation, when we get dividends from SPY, we need to pay tax.
My question is, does SPY pays additional tax when getting dividends from Microsoft?
If this is correct, it seems like the double-taxation.
Thanks for your responses!
Mutual funds and ETFs are considered "pass-through" investments. They are required to pay dividends received from their holdings to shareholders who are then responsible for payment of taxes if the dividends are received in a non sheltered account.
While it's true that dividends are passed through investment vehicles, like ETFs, without being taxed at that step, dividends are double taxed.
Microsoft, Inc. earns income and pays income tax on that number. Then you receive a dividend from MSFT and that payment is income to you, you'll owe income tax on that number.
(obviously this assumes you're not holding the stock in a tax advantaged account of some sort)
