The American Taxpayer Relief Act of 2012 (ATRA), P.L. 112-240, left corporate tax rates unchanged but increased the top individual tax rates. In 2013 the rate was 39.6% (up from 35%) for earned amounts in excess of $450,000 for married taxpayers filing jointly and surviving spouses, $425,000 for heads of households, $400,000 for singles, and $225,000 for married taxpayers filing separately. Under ATRA, threshold income amounts are adjusted annually for inflation. Beginning 2015, the inflation-adjusted amounts are $464,850 for married taxpayers filing jointly and surviving spouses, $439,000 for heads of households, $413,200 for singles, and $232,425 for married taxpayers filing separately.
ATRA also made permanent an increased tax rate on qualified dividends for the majority of taxpayers. Beginning 2013, the tax rate is 15% for taxpayers in the 25% to 35% income tax brackets, and 20% for taxpayers in the top income tax bracket of 39.6%. Higher-income individuals pay an additional 3.8% tax on net investment income.
Since qualified dividends are taxed at a maximum rate of 20% (or 23.8% if they are subject to the net investment income tax), it could make sense to pay out some amount of a corporation’s income in the form of dividends to owner-employees instead of “zeroing out” the corporation’s income by paying them additional compensation (salaries and bonuses) which are subject to Social Security and Medicare taxes. This is a tax strategy that should be explored with your accounting professional.