A stock dividend is considered taxable income because it represents a distribution of a company's earnings to its shareholders. Even though the dividend is paid in the form of additional shares rather than cash, it still has value and effectively increases the shareholder's wealth, which is subject to taxation. Thus, it is treated as income for tax purposes because it is a payment based on the company's profits and success distributed to shareholders.
Dividends (including stock dividends) are a portion of the company's earnings paid to shareholders, which is why they are taxable. Whether the dividend is received in cash or stock form, it reflects value derived from the company's earnings, making it taxable income. The tax treatment may vary depending on whether dividends are qualified or ordinary, affecting the tax rate applied, but fundamentally, dividends are taxable because they constitute income from ownership in a company.
In summary, a stock dividend is taxable income because it is a distribution of company earnings to shareholders that has value and increases the shareholder's wealth, making it subject to income tax.