Company/Dividend Tax in the US - Quick Question

[Andy R]

Just wondering how tax works on companies in the US.

In Australia, a company pays 30% tax on profits.

On money retained to grow the business:
Any money re-invested by the company is after tax is paid

On dividends:
For any money paid out as dividends, if the shareholder is an Australian resident they get a tax credit for the 30% paid in company tax. So for example, when you get $70 in dividends, you have essentially earned $100 and already paid $30 tax.

Just wondering what happens in the US?
1. What is the company tax rate?
2. Assume the company still pays tax on money they want to re-invest into the business?
3. Do you pay more or less than this for the amount paid out as dividends?

[seattlecyclone]

The company tax rate is complicated. I think the nominal rate is one of the highest in the world, but there are lots of exceptions and deductions and things that make the average company's rate be more in line with the global average. Revenue reinvested into the business in the form of wages or other legitimate business expenses is not taxed; only profits are taxed, whether retained by the company or paid out to shareholders. There's no special tax credit on dividends like you describe in Australia. Corporations pay tax on their profits and then investors pay tax on their dividends, though dividends are typically taxed at a lower rate than wage income.

[Andy R]

Thanks for the reply.
I read online that as of 2017, company tax is now 21%

If I use these assumptions:
Long term expected nominal total return of 8%
Market-wide dividends about 2% (about 1/4 of total return)
Dividends taxed an additional 15%
So dividends add about 1/4 x 15% = 3.75% tax on company profits.

Then expected tax would be about 21+3.75%, so around 25% total tax on company profits

Doe that sound about right?

[seattlecyclone]

The 15% dividend tax is a simplification. Some people pay 0%, others pay 20%, depending on their own income level. Regardless, that tax is paid by the individual rather than the corporation.

[walkwalkwalk]

Some even pay an additional 3.8% net investment income tax. so its not easy to compare the two tax regimes