What is the capital gains tax rate for high-income earners?
Learn about the capital gains tax rate applicable to high-income earners and its implications for wealthier taxpayers.
The capital gains tax rate for high-income earners in the United States can vary based on income levels and the type of capital asset being sold, here is a general overview of the capital gains tax rates for high-income individuals:
Long-Term Capital Gains: The tax rates for long-term capital gains (assets held for more than one year) were as follows:
- 0% for individuals with taxable income up to $40,400 (for singles) or $80,800 (for married couples filing jointly).
- 15% for individuals with taxable income between $40,401 and $441,450 (for singles) or between $80,801 and $496,600 (for married couples filing jointly).
- 20% for individuals with taxable income over $441,450 (for singles) or $496,600 (for married couples filing jointly).
Net Investment Income Tax (NIIT): High-income earners may also be subject to the 3.8% Net Investment Income Tax (NIIT) on the lesser of their net investment income or the amount by which their income exceeds certain thresholds. As of 2021, the thresholds for the NIIT were $200,000 for singles and $250,000 for married couples filing jointly.
State Taxes: In addition to federal capital gains taxes, some states impose their own capital gains tax rates, and these rates can vary significantly. High-income earners in states with high income taxes may face additional state taxes on capital gains.
It's important to note that tax laws can change, and specific rules can be subject to legislative updates. Additionally, high-income earners may face additional complexities in their tax situation, such as the phase-out of certain deductions and credits at higher income levels.
To navigate the complexities of capital gains taxation and to determine the precise tax liability for high-income individuals, it is advisable to consult with a tax professional or accountant who is knowledgeable about current tax regulations and can provide personalized guidance based on the individual's income, assets, and overall financial situation. Tax planning strategies may also be employed to optimize the tax treatment of capital gains for high-income individuals.
Capital Gains Tax Rate for High-Income Earners: Taxation for the Wealthy.
The capital gains tax rate for high-income earners is the same as the capital gains tax rate for other taxpayers. However, high-income earners may also be subject to the Net Investment Income Tax (NIIT). The NIIT is a 3.8% tax on net investment income, which includes capital gains, dividends, and interest. The NIIT applies to individuals with modified adjusted gross income (MAGI) above $200,000 (single) or $250,000 (married filing jointly).
The following table shows the capital gains tax rates for 2023:
| Taxable income | Short-term capital gains tax rate | Long-term capital gains tax rate | NIIT |
|---|---|---|---|
| Up to $41,775 (single) or $83,550 (married filing jointly) | 10%-37% | 0% | No |
| $41,776-$459,750 (single) or $83,551-$517,850 (married filing jointly) | 10%-37% | 15% | Yes, if MAGI over $200,000 (single) or $250,000 (married filing jointly) |
| Over $459,750 (single) or $517,850 (married filing jointly) | 10%-37% | 20% | Yes, if MAGI over $200,000 (single) or $250,000 (married filing jointly) |
High-income earners who are subject to the NIIT should consult with a tax professional to determine how the NIIT will apply to their specific situation.
In addition to the capital gains tax and NIIT, high-income earners may also be subject to other taxes, such as the alternative minimum tax (AMT). The AMT is a parallel tax system that is designed to ensure that high-income earners pay a minimum amount of tax.
High-income earners should work with a tax advisor to develop a tax strategy that minimizes their tax liability.