You are currently viewing With Meta dividends, Mark Zuckerberg might have to pay the IRS millions. Perhaps he is still receiving “a major break.”
With Meta dividends, Mark Zuckerberg might have to pay the IRS millions. Perhaps he is still receiving "a major break."

With Meta dividends, Mark Zuckerberg might have to pay the IRS millions. Perhaps he is still receiving “a major break.”

The parent company of Facebook said that it will begin paying out its first cash dividend in March.

This week, Mark Zuckerberg made Wall Street and Meta shareholders very happy by announcing the company’s first-ever dividend.

Now that it is facing millions of dollars in taxes on the dividends from Meta stocks that were headed for Zuckerberg’s portfolio, the IRS could also be pleased.

The CEO of Meta Platforms Inc. (META, +20.32%), Zuckerberg, is expected to receive $700 million in dividend payments per year. According to FactSet, he possesses over 350 million shares, and the business will begin disbursing a 50 cent quarterly dividend per share.

According to two accounting experts, that would result in around $167 million in federal taxes per year, after a 20% qualifying dividend tax and an additional 3.8% tax on wealthy households’ investment returns.

Zuckerberg might have to pay an additional $93.1 million in California income taxes of 13.3% on the profits, according to Andrew Belnap, an accounting professor at the McCombs School of Business at the University of Texas at Austin.

According to Belnap’s estimation, the annual tax burden on the Meta dividends amounts to a total of $259.7 million in federal and state taxes.

For background, according to IRS figures, through mid-November 2023, U.S. taxpayers reported over $285 billion in qualifying dividend income to the agency. Up until then, qualifying dividends were recorded on nearly 30 million tax forms.

According to Meta, it will begin paying out a quarterly cash dividend in March.

Friday saw a 20.5% increase in Meta shares, which closed at a record-high of $474.99. On Friday, the Nasdaq Composite COMP, S&P 500 SPX, and Dow Jones Industrial Average DJIA all finished higher.

“Zuck is about to get a big break.”

In the same week that Americans started submitting their income taxes, Meta revealed the dividend payout in its quarterly results on Thursday.

Examining Zuckerberg’s dividends and the tax consequences they carry provides an overview of the discussion around the disparate taxation of wealth and earnings.

According to Andrew Schmidt, an accounting professor at North Carolina State University’s Poole School of Management who also performed data analysis for MarketWatch, “Zuck is getting a major break.”

He remarked that the $167 million tax bill “seems like a high tax bill.” However, Schmidt calculated that Zuckerberg would have to pay about $259 million in taxes on the $700 million if he got the money as a direct salary after it was taxed at the highest marginal rate of 37%.

The range of federal income tax brackets is 10% to 37%.

Meanwhile, depending on household status and income, the IRS taxes qualifying capital gains and dividends at 0%, 15%, and 20%. An additional 3.8% is added to the net investment income tax for individuals earning at least $200,000 or married couples worth $250,000.

According to Belnap, Zuckerberg would pay a combined rate of 37.1% in federal and state taxes on the Meta dividends. He remarked, “His tax rate on this is actually fairly high.”

According to Schmidt, one major issue with U.S. tax policy has been the disparity in tax rates between income from investments and salaries. This issue has arisen particularly as lawmakers search for methods to increase tax revenue.

According to Schmidt, ordinary retail investors receive the same favorable rates on dividends and capital gains as the top 1% of taxpayers. The problem lies in the fact that salaries, which are subject to higher tax rates, make up a larger share of their income than dividends and stock earnings.

Belnap pointed out that dividends are not given any preferential treatment under California’s state tax laws.

Also read: The positions of Trump, Biden, and Haley on capital gains, the child tax credit, and other important tax issues

In 2022, Zuckerberg was paid a base salary of $1, which hasn’t altered in a number of years. Based on the Bloomberg Billionaires Index, he is currently the fifth richest person in the world with a net worth of $142 billion.

A request for comment from Meta was not immediately answered.

According to Belnap and Schmidt, Zuckerberg and all other Meta shareholders, regardless of size, won’t have to worry about paying taxes on the Meta dividends until the following year’s tax season.

However, as people accumulate their 1099-DIV forms for dividend income, statistics from the IRS indicate that the majority of upper-class taxpayers benefit from the preferential rates for eligible dividends.

According to agency estimates, 40% of the approximately $285.3 billion in qualifying dividends reported through mid-November were held by households with a net worth of at least $1 million.

“I’d say very few people are living off dividends, but it’s usually a nice supplement,” Belnap remarked in reference to less wealthy investors.