American Taxpayer Relief Act – New Dividend and Capital Gains Rates

With the passage of the American Taxpayer Relief Act there are new tax rates for capital gains and dividends. Although the new rates are higher they are not nearly as high as they would have been if an agreement had not been reached and the rates were allowed to reset to what they were before the Bush era tax cuts.

The new maximum rate for capital gains and dividends is 20 percent compared to the prior 15 percent maximum rate. The new rate will apply to very few taxpayers though. The new max rate only applies to the extent that income exceeds the thresholds for the new 39.6 percent income tax rate. Those thresholds are set at $400,000 for single filers and $450,000 for joint filers. Qualified dividends will continue to be taxed at capital gains rates for all taxpayers rather than at ordinary income tax rates as would have happened if an agreement had not been reached.

The maximum tax rate for capital gains and dividends for everybody else remains at 15 percent. It is also possible to enjoy a 0 percent rate on capital gains and dividends for income that is below the top of the 15 percent income tax bracket according to a tax tool. The top of the 15 percent tax bracket is projected to be $72,500 for joint filers and $36,250 for single filers according to a report from CCH.

The new tax rates on dividends and capital gains are good news for those who are investing for retirement. For your retirement investments that are not in tax sheltered accounts you will avoid paying the much higher tax rates that would have been enacted if we went off the fiscal cliff. It is still possible that these rates could change again when the debt limit negotiations are held in a couple of months. I doubt the rates would be changed this year though. Hopefully, these favorable tax rates on investments will stay around for a long time, but with the pressure to raise tax revenue it is likely that the government will look at raising tax rates on investments again in the coming years.


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3 responses to “American Taxpayer Relief Act – New Dividend and Capital Gains Rates”

  1. […] My Retirement Blog has the new capital gains and dividend tax rates. […]

  2. It’s true that while using the passageway with the American Taxpayer Alleviation Act you will discover new tax premiums for funds benefits and returns. Even though new premiums are generally higher these are certainly not virtually as tall as they will have been when a good understanding had not been arrived at as well as the premiums were being permitted to recast about the these were before the Bush period tax slashes.
    Thanks Andy for

  3. Yes the new tax act left these more favorable tax rates for most taxpayers. Readers should be aware that the new medicare 3.8% tax and the employee 0.9 tax still remain and effective starting in 2013. Taxpayers should do appropriate advance tax planning to avoid unpleasant surprises.