New Dividend Tax


By bgamall4   Follow   Sat, 17 Nov 2012, 7:04am   554 views   5 comments
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http://www.businessinsider.com/new-dividend-tax-2012-11

Unless Congress intervenes, taxes are set to rise significantly on January 1st, when we hit the "fiscal cliff." Most of the focus of this tax increase has been on income taxes. Income taxes for incomes over ~$388,351, for example, are set to revert back to the Clinton-era 39.6% from the current 35%.

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  1. zzyzzx


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    1   9:30am Sat 17 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    On January 1, dividend taxes for those in the top tax bracket will jump from the current 15% back to the Clinton-era 39.6%. And then a new 3.8% surcharge to pay for Obamacare will be added on top, for a total top tax rate on dividends of 43.4%.

    In short, unless Congress compromises, the top bracket for federal dividend taxes will nearly triple on January 1, from 15% to 43.4%.

    (Lower dividend tax brackets will rise, too--back to ordinary income tax rates--but these brackets seem likely to be given a tax cut. And dividend taxes may be included in that cut).

    National Taxpayers Union

    The ordinary income tax bracket will still be historically low, so don't fall for any whining that suggests otherwise.
    What this means is that well-off Americans who are collecting, say, $100,000 a year in gross dividend income will keep about $57,000 next year versus $85,000 this year, a drop of 33%.

    Unlike the change in income taxes and capital-gains taxes, that change is big enough to create a strong incentive for changes in behavior.

    IMO, it's all part of Obama's plan to keep people from being able to retire, after all, people dependent on taxpayer funded programs make better drones.

  2. Patrick


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    2   9:44am Sat 17 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    zzyzzx says

    What this means is that well-off Americans who are collecting, say, $100,000 a year in gross dividend income

    If you're collecting $100K per year in dividend income at the typical 2% rate these days, that means you have $5M in stock.

    Anyone is quite able to retire very nicely on $5M even if taxes on dividends were 100%.

    I do agree that dividends should not be double-taxed though: first when corporations pay income tax, and then when the recieving individual pays income tax. Any amount paid out in dividends should be deductible from corporate income, to encourage the payout of dividends and the rational valuation of stocks.

  3. justme


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    3   12:39pm Sat 17 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    zzyzzx says

    And then a new 3.8% surcharge to pay for Obamacare will be added on top, for a total top tax rate on dividends of 43.4%.

    The above is another lie by the right-wing propaganda machine. The surcharge is only 0.9% on top of the already existing 2.9% medicare payroll tax, of which employees and employers pay half each. If you are self-employed, you pay the 2.9% yourself, of course. There is no "3.8% surcharge".

    Whenever the right-wingers start spouting numbers about taxes, one can generally assume that they are lying. They usually are, because the facts do not support their agenda.

    Here is a better a source than the right-wing echo-machine:

    http://www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/

    Right now, the Medicare tax on salary and/or self-employment (SE) income is 2.9%. If you're an employee, 1.45% is withheld from your paychecks, and the other 1.45% is paid by your employer. If you're self-employed, you pay the whole 2.9% yourself.

    Starting in 2013, an extra 0.9% Medicare tax will be charged on: (1) salary and/or SE income above $200,000 for an unmarried individual, (2) combined salary and/or SE income above $250,000 for a married joint-filing couple, and (3) salary and/or SE income above $125,000 for those who use married filing separate status. For self-employed individuals, the additional 0.9% Medicare tax hit will come in the form of a higher SE bill.

  4. zzyzzx


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    4   4:19pm Sat 17 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    If you're collecting $100K per year in dividend income at the typical 2% rate these days, that means you have $5M in stock

    Or you bought long ago when interest rates were higher.

  5. david1


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    5   5:34pm Sat 17 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    zzyzzx says

    Or you bought long ago when interest rates were higher.

    That doesn't matter. The basis might be lower than $5M, but $100k at 2% is $5M is present value of stock.

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