Mark Zuckerberg could pay millions in taxes to the IRS on his meta earnings
Mark Zuckerberg delighted Meta and Wall Street shareholders this week with news of the social media giant’s first-ever earnings.
The IRS may also be happy, now that it has begun taxing millions in Meta stock dividends tied to Zuckerberg’s portfolio.
Zuckerberg, CEO of Meta Platforms Inc.
It is poised to generate $700 million in revenue annually. He owns approximately 350 million shares, according to FactSet, and the company will begin paying a quarterly dividend of 50 cents per share.
That would generate roughly $167 million in federal taxes annually, after a 20% qualified gains tax and another 3.8% tax on wealthy households’ investment returns, two accounting experts said.
California’s 13.3% income tax on dividends could cost Zuckerberg another $93.1 million, said Andrew Belknap, an accounting professor at the University of Texas at Austin’s McCombs School of Business.
In all, that’s a total of $259.7 million in federal and state taxes annually on Meta’s earnings, Belknap estimates.
For context, American taxpayers reported more than $285 billion in qualified dividend income to the IRS as of mid-November 2023, according to agency statistics. Nearly 30 million tax returns reported qualifying earnings during that time.
Meta said that it plans to distribute quarterly cash dividends, with the first payment being in March.
Meta shares rose 20.5% on Friday, ending with a record close of $474.99. The Dow Jones Industrial Average (DJIA), S&P 500 SPX and Nasdaq Composite COMP closed higher on Friday.
“Zuck is getting his big break.”
Meta announced the dividend in its earnings results on Thursday, the same week Americans began filing their income taxes.
A look at Zuckerberg’s earnings and their tax implications offers a peek into the debate over the different ways wages and wealth are taxed.
“Zoc has got a huge opportunity,” said Andrew Schmidt, an accounting professor at North Carolina State University’s Ball College of Management, who also crunched the numbers for MarketWatch.
Nearly $167 million “seems like a high tax bill,” he said. But if Zuckerberg received $700 million in direct salary, Schmidt estimated he would be looking at a roughly $259 million tax bill on wages after they were taxed at the top marginal rate of 37%.
Federal income tax brackets range from 10% to 37%.
Meanwhile, the IRS taxes qualified dividends and capital gains at 0%, 15%, and 20%, depending on income and family status. The net investment income tax adds another 3.8% for individuals making at least $200,000 or couples making $250,000.
For federal and state taxes on Meta earnings, Zuckerberg would face a combined rate of 37.1%, Belknap noted. “The tax rate he charged on this is actually fairly high,” he said.
The gap in tax rates on income derived from wages and investments “has been a major criticism of American tax policy,” especially as lawmakers look for ways to generate more tax revenue, Schmidt said.
Schmidt added that ordinary individual investors enjoy the same preferential rates on capital gains and dividends as the top 1% of taxpayers. The problem is that those earnings and dividends represent a smaller portion of their income, while salaries, which are taxed at higher rates, represent a larger percentage.
Belknap noted that California tax rules do not provide special treatment for dividends.
Read also: Where Trump, Biden, and Haley stand on capital gains, the child tax credit, and other key tax issues
Zuckerberg will receive a base salary of $1 in 2022, a number that has not changed in several years. He is now worth $142 billion, according to the Bloomberg Billionaires Index, making him the fifth-richest person in the world.
Meta did not immediately respond to a request for comment.
Belknap and Schmidt noted that taxes on Meta’s profits would not be something Zuckerberg, or any Meta shareholders, whether large or small, would need to deal with until next year’s tax season.
But while taxpayers base their 1099-DIV forms on dividend income, IRS figures show that top-tier taxpayers are mostly reaping the rewards on preferential rates for qualified dividends.
Households worth at least $1 million accounted for 40% of the roughly $285.3 billion in eligible earnings reported through mid-November, according to agency figures.
For less wealthy investors, “it’s usually a nice supplement, but I’d say very few people live off dividends,” Belknap said.