Mark Zuckerberg Could Pay Millions in Taxes to IRS on Meta Dividends – MarketWatch

That would raise nearly $167 million in federal taxes a year, after a 20% qualified dividend tax and another 3.8% tax on investment returns for wealthy households, two accounting experts said.

California’s 13.3% income tax on dividends could cost Zuckerberg an additional $93.1 million, said Andrew Belnap, an accounting professor at the University of Texas at Austin’s McCombs School of Business. .

In total, that amounts to a combined $259.7 million in federal and state taxes per year on Meta dividends, Belnap estimated.

As a reminder, American taxpayers reported more than $285 billion in qualified dividend income to the IRS through mid-November 2023, according to agency statistics. Nearly 30 million tax returns declared qualified dividends during this period.

Meta said it plans to pay a quarterly cash dividend in the future, with the first such payment expected in March.

Meta shares soared 20.5% on Friday, ending with a record close of $474.99. The Dow Jones Industrial Average DJIA, S&P 500 SPX and Nasdaq Composite COMP all closed higher on Friday.

“Zuck enjoying a major break”

Meta announced the dividend payout in its earnings on Thursday, the same week Americans began filing their income taxes.

A look at Zuckerberg’s dividends and their tax implications offers insight into the debate over the different ways wages and wealth are taxed.

“Zuck is getting a major break,” said Andrew Schmidt, an accounting professor at North Carolina State University’s Poole School of Management, who also crunched the numbers for MarketWatch.

About $167 million “seems like a high tax bill,” he said. But if Zuckerberg received the $700 million as a flat salary, Schmidt estimated he would have to pay about $259 million in payroll taxes after they were taxed at the top marginal rate of 37 %.

Federal income tax brackets range from 10% to 37%.

Meanwhile, the IRS taxes qualified dividends and capital gains at 0%, 15% and 20%, depending on household income and circumstances. The net investment income tax adds another 3.8% for individuals earning at least $200,000 or married couples worth $250,000.

For federal and state taxes on Meta dividends, Zuckerberg would face a combined rate of 37.1%, Belnap noted. “Its tax rate is actually quite high,” he said.

The gap between tax rates on income from wages and investments “has been a major criticism of U.S. tax policy,” Schmidt said, especially as lawmakers look for ways to raise more revenue tax.

Regular retail investors benefit from the same preferential rates on capital gains and dividends as the top 1% of taxpayers, Schmidt added. The problem is that these stock dividends and profits represent a smaller portion of their income, while wages, taxed at higher rates, represent a larger proportion.

Belnap noted that California state tax rules do not give special treatment to dividends.

Read also: Where Trump, Biden and Haley stand on capital gains, the child tax credit and other key tax issues

Zuckerberg received a base salary of $1 in 2022, a figure that hasn’t changed in several years. He is now worth $142 billion, according to the Bloomberg Billionaires Index, making him the fifth richest person in the world.

Meta did not immediately respond to a request for comment.

Meta’s dividend taxes won’t be something that Zuckerberg, or any Meta shareholder, large or small, will have to deal with before next year’s tax season, Belnap and Schmidt observed.

But as taxpayers pile up their 1099-DIV forms on dividend income, IRS figures show that it’s primarily upper-tier taxpayers who reap the rewards of preferential rates for qualified dividends.

Households worth at least $1 million accounted for 40% of the roughly $285.3 billion in eligible dividends declared through mid-November, according to the agency’s figures.

For less fortunate investors, “it’s generally a nice addition, but I would say very few people live off dividends,” Belnap said.