Historical U.S. Dividend Tax Rates
Thursday, December 8, 2022

Dividends

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders. A corporation may retain a portion of its earnings and pay the remainder as a dividend. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.

The table below represents the maximum tax rate on dividends received by an individual shareholder from domestic and qualified foreign corporations.

Historical Dividend tax rates

Tax-bracket:Top (Now 39.6%)25% - 35%15% or less
% % %
2018 20% 15% 0%
2017 20% 15% 0%
2016 20% 15% 0%
2015 20% 15% 0%
2014 20% 15% 0%
2013 20%* 15% 0%
2012 15% 15% 0%
2011 15% 15% 0%
2010 15% 15% 0%
2009 15% 15% 0%
2008 15% 15% 0%
2007 15% 15% 0%
2006 15% 15% 0%
2005 15% 15% 0%
2004 15% 15% 0%
2003 15%** 15%** 0%**

*The American Taxpayer Relief Act of 2012 (aka The Fiscal Cliff Deal) increased the dividend tax rates for those individuals earning over $400,000 and households earning over $450,000.

**The Tax Relief Reconciliation Act of 2003 (aka The Bush Tax Cuts) significantly lowered the dividend tax rates – see history passage below.

Dividend Tax Rate History prior to 2003

The background of federal income taxes begins with the passage of the 16th Amendment to the United States Constitution on February 3, 1913. This amendment states: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This relatively vague text has allowed Congress to impose its power to tax anything that it might consider income, which has included dividends paid by corporations to its shareholders. There has been a lot of controversy behind this interpretation; many believe that dividends should not be accounted in this income power, since some believe this is “double taxation” as the company’s profits have already been taxed.

In the beginning of income tax history, dividends paid to shareholders were exempt from taxation from the passage of the 16th Amendment in 1913 to 1953, except for a four year period from 1936 to 1939 where dividends were taxed at an individual’s income tax rate (when the top income tax rate was 79%). Though there were these periods of tax exempt dividends, it has been the case for the past 60 years that dividends have been taxed at various rates. Beginning with the Internal Revenue Code of 1954, dividends started to be fully taxed with only the first $50 earned exempt from taxation. For the next 30 years this policy was in place with the only variable being the initial amount exempt from taxes.

Starting in 1985, dividends would begin an 18-year period of being fully taxed at an individual’s income tax rate (the highest rate varied from 28% to 50% over this period). Then in 2003 the Bush tax cuts came into effect, thus lowering qualified dividend tax rates to 15%.