Income from stock investments is also considered part of everyone’s income, so the government will tax you when there is dividend income.
Why is there no tax reduction when investment fails?
Dividend income is not counted in the Special Deduction for Savings and Investment. The Special Deduction for Savings and Investment applies to income such as bank deposit interest.
Dividend Taxation Methods
1. Consolidated Taxation
Dividend income is treated as general comprehensive income and is calculated together. Therefore, the tax percentage is determined by the progressive tax rate, which means you will be taxed at 5%, 12%, 20%, 30%, or 40% depending on your income level.
| Net Comprehensive Income | Tax Rate | Progressive Difference |
|---|---|---|
| 0 ~ 540,000 | 5% | 0 |
| Over 540,000 ~ 1,210,000 | 12% | 37,800 |
| Over 1,210,000 ~ 2,420,000 | 20% | 134,600 |
| Over 2,420,000 ~ 4,530,000 | 30% | 376,600 |
| Over 4,530,000 | 40% | 829,600 |
Consolidated Taxation Tax Reduction Benefit
Consolidated taxation offers a 8.5% tax reduction on dividends, but the maximum reduction amount is 80,000.
So, if the dividend income is 10,000, there is an extra 850 quota that does not need to be taxed. However, due to the tax reduction limit, when dividend income is higher than 941,176, the dividend tax reduction amount will be 80,000.
| Dividend Income | Dividend Tax Reduction Amount |
|---|---|
| 10,000 | 850 |
| 941,176 | 80000 |
| 1,000,000 | 80000 |
Consolidated Taxation Payment = (
Comprehensive Income+Dividend Income) *Progressive Tax Rate-Dividend Income * 8.5% (Max 80,000)
2. Separate Taxation
Dividend income is calculated separately from comprehensive income, taxed at a flat rate of 28%, with no amount limit or brackets.
Separate taxation does not have the 8.5% reduction benefit, so the effective tax rate for dividends looks more like this:
Consolidated Progressive Tax Rate |
Consolidated Tax Reduction |
Consolidated Effective Tax Rate (Progressive Rate - Reduction) |
Separate Tax Rate |
|---|---|---|---|
| 5% | 8.5% | -3.5% (Dividend Refund) | 28% |
| 12% | 8.5% | 3.5% | 28% |
| 20% | 8.5% | 11.5% | 28% |
| 30% | 8.5% | 21.5% | 28% |
| 40% | 8.5% | 31.5% |
28% |
You will find that when the consolidated progressive tax rate is 40%, after deducting the 8.5% reduction benefit, the effective tax rate is 31.5%, which is higher than the 28% for separate taxation. Therefore, if your consolidated progressive tax rate is 40%, you should choose separate taxation for dividends to pay lower taxes.
Separate Taxation Payment =
Comprehensive Income * Progressive Tax Rate+Dividend Income * 28%
Why Is There a Dividend Tax Reduction?
Investing in companies or buying company stocks is encouraged because it allows people to use their funds for investment and innovation. This leads to social progress, gives companies more money to recruit talent, and creates more job opportunities, moving the whole society towards a positive cycle of development.
Company has money => Investment => Recruit talent => Innovation creates more value and income => Social progress
Therefore, the government continuously encourages everyone to buy stocks and invest. To achieve this goal, dividend income is eligible for tax reduction, encouraging more people to invest their spare money in the market and making society progressively better.
Which Filing Method Is More Cost-Effective?
A. Usage of special deduction for preschool children and special deduction for long-term care
Both the special deduction for preschool children and the special deduction for long-term care have wealth exclusion clauses. If the comprehensive income tax rate is 20% or higher, or if Separate Taxation for Dividends (28%) is used, these deductions cannot be claimed.
| Special Deduction | Deduction Amount | Usage Scenario |
|---|---|---|
| Special deduction for preschool children | Max 120,000 | Family has children under 5 years old, can be claimed as dependents and use this deduction |
| Special deduction for long-term care | Max 120,000 | Using a caregiver or staying in a long-term care facility allows the use of this deduction |
Recommended Situation for Consolidated Taxation
- Need to use
special deduction for preschool childrenandspecial deduction for long-term care Comprehensive Income + Dividend Incomeresults in a progressive tax rate lower than20%