Mark Zuckerberg could pay millions in taxes to the IRS on Meta dividends

Mark Zuckerberg delighted Meta shareholders and Wall Street this week with news of the social media giant’s first-ever dividend.

The IRS might be happy, too, now that it’s staring at millions in taxes on Meta stock dividends going to Zuckerberg’s wallet.

Zuckerberg, CEO of Meta Platforms Inc. META,
is poised to earn $700 million in dividends per year. He owns nearly 350 million shares, according to FactSet, and the company will begin paying a quarterly dividend of 50 cents per share.

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

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

Overall, that’s a total of $259.7 million in annual federal and state taxes on Meta dividends, Belnap estimates.

As an example, according to agency statistics, U.S. taxpayers reported more than $285 billion in qualified dividends to the IRS through mid-November 2023. Nearly 30 million tax returns reported qualified dividends during that period.

Meta said it plans to pay quarterly cash dividends in the future, with the first payment in March.

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

“Zuck Is Having a Big Break”

Meta announced the dividend payments in earnings results Thursday, the same week that Americans began filing income taxes.

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

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

About $167 million “seems like a high tax figure,” he said. But if Zuckerberg received the $700 million as a fixed salary, Schmidt estimates that he would face a tax bill of about $259 million on the salaries after they are taxed at the top marginal rate of 37%.

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

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

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

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

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

Belnap noted that California state tax rules do not provide special treatment for dividends.

Read also: Trump, Biden and Haley’s positions on capital gains, the child tax credit and other key tax issues

Zuckerberg received a base salary of $1 in 2022, a figure that has not changed for 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.

Taxes on Meta’s dividends won’t be something Zuckerberg, or any other Meta shareholder, large or small, will have to deal with until next year’s tax season, Belnap and Schmidt noted.

But as taxpayers pile up their 1099-DIV forms on dividend income, IRS data shows that it’s mostly upper-tier taxpayers who are reaping the benefits of preferential rates for qualified dividends.

According to agency data, households worth $1 million or more accounted for 40% of the approximately $285.3 billion in qualified dividends reported through mid-November.

For less wealthy investors, “it’s usually a good supplement, but I would say very few people live off dividends,” Belnap said.

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