This Holiday Season, Corporations go Bargain Hunting Too


As we’ve officially entered the holiday shopping season, millions of Americans are now on the hunt for bargains and deals as they barrel through their lists, and the season typically starts off with a uniquely American bang – Black Friday and Cyber Monday. This grand celebration of retail consumerism has been increasing in popularity and scale for the last several years, and this year, Wal-Mart and other retailers seemed to encroach on Thanksgiving's territory even more by opening at 8PM that night. This forced many to decide whether to indulge in the pumpkin pie or skip out to save a couple hundred bucks on a flat-screen TV.  

While many consumers head out this December to find retail savings any way they can, corporations will also be trying to save money in preparation for the tax uncertainty of 2013. For example, the Walton heirs - who still own 48% of Wal-Mart – plan to move a regularly-scheduled dividend payment from January 2 to December 27 to save millions in taxes. Why? Well, one of the many issues related to the “fiscal cliff” being hammered out in Washington is taxes on dividends. Under current law, tax on dividends is capped at just 15%. The Wal-Mart dividend will be 39.75 cents/share, and the Walton’s own approximately 1.6 billion shares. That means the family's payout will be $636 million, and their federal income tax bill on that payout will be $95.4 million. However, if Wal-Mart waits until January 1 to make the payment, the tax landscape could look very different. If Congress and the White House can’t find a way to extend the current rates (in effect since 2003), dividends will lose their special protection and the top rate will more than double, to 39.6%. The Walton’s would then pay an extra $156 million in tax on their dividend.  

Waiting until January 1 would also make the Walton family subject to the new "Unearned Income Medicare Contribution" of 3.8%, which is a special tax on investment income for taxpayers making over $200,000 (or $250,000 for joint filers). Combine that with the new dividend tax rate, and the Walton’s final tax bill would be nearly three times as high - a hefty $276 million!  

Wal-Mart will obviously not be the only company accelerating dividend payments to beat the tax hike. It’s estimated that 109 public companies will issue special dividend payments before January 1 (these special payments will actually be enough to give the IRS a significant spike in 2012 tax revenue). The New York Times reports that companies where board members own a large percentage of company shares are likeliest to issue the special payment. While the three Walton family members who serve on the company's board of directors recused themselves from the vote to accelerate the dividend payment, a company spokesman confirmed the company did make the decision because of uncertainty over taxes.  

While your income and dividends may not be Wal-Mart size, it is still important to know how your taxes may change in the coming year, whether because of certain tax cuts expiring, or the Affordable Care Act taking effect. Make sure you stay on top of the always-changing tax code to ensure proper compliance, and consult a tax professional if necessary!