2015 and 2016 Taxation of Dividends and Long Term Capital Gains
For taxpayers in the 10% and 15% brackets, qualifying dividends and long term capital gains (assets held for more than a year) are taxed at 0%. For those in 25%, 28%, 33% and 35% tax brackets, the tax rate on dividends and long term capital gains is 15%. For those in the top 39.6% bracket, the tax rate is 20%.
2015 and 2016 Medicare Surtaxes
As part of the health care reform enacted in 2010, additional Medicare surtaxes apply to high income wage earners and high income investors. The surtaxes apply when a single taxpayer's Modified Adjusted Gross Income (MAGI) exceeds a threshold of $200,000 or joint return filers when their MAGI exceed $250,000.
- For wage earners, an additional 0.9% Medicare surtax applies to wages (including bonuses and self-employment income) above the threshold amounts.
- For investors, an additional 3.8% Medicare surtax applies to net investment income (taxable interest, dividends, capital gains, etc.) in excess of the thresholds.
Taxable vs. Tax-free Bonds
Those in higher tax brackets often benefit from tax-exempt interest income. To see if you should consider tax-exempt bonds, compare the after-tax yield of a taxable bond to the yield of a tax-exempt bond. Be sure the bonds have similar maturity dates and similar quality ratings. This chart can help with that comparison.