However, in most cases, everyone must pay taxes on dividends. In the U.S. and most other countries, for that matter, dividends are considered income, and hence they are taxed.
A company can return some money to stock owners by buying back shares or paying a dividend. However, when a company pays a dividend, the investor decides what to do with that money.
Dividend tax rates differ depending on whether the dividend is qualified or nonqualified, also known as ordinary. The difference in the tax rate can be dramatic depending on your income.
In general, the answer is no, but there are exceptions. Dividends are a type of income, so they are taxable. Reinvesting dividends in the same stock or mutual fund or ETF, for that matter, does not avoid taxes.
Owning a retirement account is an advantage and a legitimate way to defer or avoid taxes on dividends. It is also a good way to leverage the power of compounding by reinvesting the dividends tax-free.