More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
The United States has one of the highest tax rates for personal dividend income in the OECD, according to recent research conducted by the Tax Foundation.
The top federal rate on dividend income for individual taxpayers is 23.8% — 20% for those in the top marginal tax rate, plus a 3.8% net investment tax to fund the Affordable Care Act. At the state level, the dividend tax is as high as 13.3% in California.
To help investors, advisors and others best understand taxes on dividends and the different factors that influence them, the Tax Foundation recently put together a map that shows the combined federal, state and local top marginal tax rate on personal dividend income by state.
The research takes into account the deductibility of state taxes against federal taxes, local income taxes, the phase-out of itemized deductions and special treatment of personal dividend income. (It was conducted by Tax Foundation economist Kyle Pomerleau and communications manager Richard Borean.)
According to the organization, most states tax personal dividend income as ordinary income. As a result, states with high income tax rates have the highest taxes on personal dividends.
The highest top combined (federal and state) dividend tax rate in the United States is 33% in California, followed by New York (31.5%) and Hawaii (31.6%).
Taxpayers in some states with no personal income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) have a top marginal tax rate on personal dividend income of 25%.
New Hampshire and Tennessee do not tax personal income but levy a tax on dividend income of 5% and 6%, respectively.
Nationwide, the average dividend income tax is 28.6%.
Check out Charting the New 3.8% Investment Tax Waters on ThinkAdvisor.