Interest, Dividends, & Capital Gains

Individuals who receive substantial investment income from interest, dividends or capital gains usually have no Federal or State income taxes withheld from their investment income. Such individuals should make estimated income tax payments on the investment income they earn quarterly. Otherwise, they may receive huge, unexpected income tax bills when their income tax returns are filed the following April:
  1. Calculate Your Net Investment Income Federal and State tax authorities levy income taxes upon investment income under differing regulations. Please pay attention to such differences, as described below.
    1. Federal Income Tax The IRS levies an income tax on all capital gains income. Investment income realized from interest, dividends and short-term capital gains is taxed at the less favorable ordinary rates, as listed in Tax Brackets & Tax Rates. Investment income realized from long-term capital gains is taxed at the more favorable rate of 15.0% or 20.0%, depending upon your AGI. Add your investment income from interest, dividends and short-term capital gains. This is your Net Federal Investment Income.Add your investment income from long-term capital gains. This is your Net Federal Long-Term Capital Gains Income.
    2. State Income Tax (New Hampshire residents only) The State of New Hampshire levies an income tax of 5.0% on interest and dividends income over $4,800 (married couples filing jointly; $2,400 for single filers). All capital gains income, whether realized from short-term or long-term investments, is not taxable income in New Hampshire. Add your interest and dividends income. This is your Net N.H. Investment Income.

      The New Hampshire interest and dividends income tax is being phased out over a 5-year period, beginning in 2023.  This income tax will be reduced each year, according to the following schedule:

      Taxable Period Ending On

      N.H. Tax Rate
      Dec. 31, 2023 4%
      Dec. 31, 2024 3%
      Dec. 31, 2025 2%
      Dec. 31, 2026 1%
      Dec. 31, 2027 0%
    3. State Income Tax (Massachusetts residents only) The Commonwealth of Massachusetts levies an income tax on all capital gains income. Investment income realized from interest, dividends and long-term capital gains is taxed at the more favorable rate of 5.0% (2020, 5.05% in 2019). Investment income realized from short-term capital gains is taxed at the less favorable rate of 12.0%.Add your investment income from interest, dividends and long-term capital gains. This is your Net Massachusetts Investment Income.Add your investment income from short-term capital gains. This is your Net Massachusetts Short-Term Capital Gains Income.
  2. Federal Self-Employment Tax Alimony income is not subject to the Federal Self-Employment Tax. Therefore you can skip Step 1(a)(2) in your Estimated Tax Payment calculations.
Proceed to Estimated Tax Payments

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