Obama is Easing on Dividend Taxes!

Author(s):

The planned dividend tax increase from 15% to more than 40% might now take place on Jan. 1, as President Obama seems to be caving on that steep of an increases. Good news for rich Americans and retirees who rely on that income.

After a few weeks of a stalemate between President Barack Obama and House Speaker John Boehner, there have been some concessions on both sides in order to assure a deal on the upcoming fiscal cliff.

However, that doesn’t mean Democrats and Republicans are ready to play nice.

Since Monday, Obama has backed off his pledge to increase taxes on incomes over $250,000. His new offer increases taxes on incomes above $400,000. Initially, Republicans were against all tax increases; however, Boehner has since offered a tax hike for incomes above $1 million.

One of the (many) tax increases that are scheduled to take place on Jan. 1, 2013, is the dividend tax, which would increase from 15% to more than 40%. Taxes on dividends can really hurt retirees, who might be using dividends as extra income.

The good news is that while investors have been trying to decide how to react to and strategize around this steep dividend tax hike, it might not happen now.

Business Insider reported that “Obama appears to be caving” on raising dividend taxes that high. The dividend tax will still go up, to a much more manageable level — likely 20%, according to Huffington Post.

The people who would benefit the most are rich Americans, according to BI, for the following reasons (based on 2009 tax data):

— The 3.8% of American households making more than $200,000 a year earn 47% of all dividend income.

— This tax change will save households making more than $200,000 about $14 billion a year.

— The top 400 highest earning taxpayers will be saved an average of $5 million apiece if the dividend tax is 20% instead of 43%.

Fiscal Cliff Agreement Nearing on Capital Gains and Dividends Rate Hikes — Huffington Post