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Letter to the Editor Clarification on Tax Rates Article In the article “Dividend Tax Rate Cuts Benefit Closely Held Corporations,” by Phillip J. Korb, John N. Sigler, and Thomas E. Vermeer (October, page 40), the Exhibit, Situation A, shows payroll taxes on bonus ($150,000 x 16%) of $24,000. For 2004, only the first $87,900 of wages are subject to Social Security tax. The Exhibit indicates there is only one owner/employee. How did the Exhibit reach this tax savings total?
The Author Responds The 16% rate was intended as an average of all payroll taxes, including other payroll related items. However, in light of the 12.4% rate applying only up to $87,900, the average rate of 16% is too high. If you adjust the payroll taxes to account for the 12.4% rate applying only up to $87,900, the payroll taxes for situation A in our Exhibit would be reduced by $7,700: [(150,000 – 87,900) x 12.4%], which would reduce the overall tax savings to approximately $3,300 ($11,000 – $7,700). Thank you for pointing this out to us, and for your interest in our article.
Correction In the November issue, Ganesh M. Pandit, one of the authors of “Comprehensive Income: Reporting Preferences of Public Companies” (page 40) was incorrectly noted as being currently affiliated with Clark Atlanta University. Pandit has recently become a faculty member at Adelphi University, Garden City, N.Y. The editors apologize for the error. |
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