In order to fund his American Families Plan proposal, Biden has reiterated his desire to increase capital gains and dividends tax rates. 

With a proposed federal tax rate of 39.6% combined with average state taxes and a 3.8% net investment income tax, the wealthiest in the nation with more than $1 million in adjusted gross income could pay tax rates of up to 49%

Currently, the top 10 countries with the highest capital-gains tax rates include:

  1. Denmark 42%
  2. Chile 40%
  3. Finland 34%
  4. France 34%
  5. Ireland 33%
  6. Norway 31.7%
  7. Netherlands 31%
  8. Sweden 30%
  9. United States 29.2%
  10. Israel 28%

As of this tax year, the U.S. enacts a 29.2% tax rate on long-term capital gains and qualified dividends for wealthy individuals. This rate includes federal and state taxes. The United States’s current tax rate is average when compared to the other nations in the Organization for Economic Cooperation and Development. 

There is some nuance when comparing tax rates and burdens across countries due to varying factors. For example, while the Biden administration aims to target the wealthiest citizens in the country (the top 0.3%), which would therefore apply to fewer taxpayers every year, other countries impose their top tax rates on a wider range of taxpayers. 

The United State’s progressive tax system also contrasts with some countries’ taxes on capital gains and dividends. France has a flat 30% tax rate on capital gains and dividends for individuals regardless of income. Germany, Japan, Hungary, and the Netherlands also use a flat tax rate. 

In the United States, single taxpayers with income pay falling in the range of $40,000 to $446,000 pay roughly 15% on their long-term capital gains and dividends.  

U.S. States’ Tax Rates on Capital Gains and Dividends

States’ tax rates on capital gains and dividends also factor into what taxpayers would owe under Biden’s proposed plan. 

Residents of the following states would not owe any additional state taxes on capital gains:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Washington 
  • Wyoming 

However, the wealthiest residents of California, New York, and New Jersey could potentially face combined tax rates of over 54%. 

These tax hikes could affect owners of small to mid-sized businesses. For example, an owner selling a business could have their income for that year pushed over the $1 million mark and thus might face higher tax rates.

The Biden administration’s proposed changes present planning challenges for investors and tax advisors alike. However, there a number of strategies that individuals could employ to lower their capital gains taxes. Never hesitate to speak with your CPA at 1-800Accountant to discuss your situation.  

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Written by Susan Young

Susan Young is a Tax Accountant and 1-800Accountant Specialist. She's worked with the company for over 5 years and takes pride in helping he...