Why some types of companies, like a limited partnership LP deduct more percentage on the dividends (for me it was 37%) than the regular percentage (30% for inc,lmt for example)?

1 Answer 1


In general, such a question ("why the tax code is just so") is a politics question as historically all dividends were ordinary income in the United States for the periods 1936-1939 and 1954-2003; one might ask instead why corporate dividends became privileged after 49 years without a change.

That said there is a rationale. As a "partnership" the entity does not pay taxes itself.

They combine the tax benefits of a private partnership—profits are taxed only when investors receive distributions—with the liquidity of a publicly traded company.

In addition to MLPs this is also a defining feature of REITs and a few other types of entity.

The difference with corporation dividends is there are two points at which taxes are assessed: the corporation pays tax on income paid by the corporation, and then any dividend to investors is investment income paid by the investor.

I presume the capitalists who chose between a partnership organization and a corporate organization assessed that the total tax impact on the cash flow of a dollar of income at the entity all the way to usable cash in hand of an investor would be taxed in total lower in a partnership (for at least for some investors).

  • are there a list for dividends tax percentage by company type? because I want to know how much percentage will be deducted before investing in a high-dividends stocks (I'm not from us)
    – huab
    Nov 17, 2021 at 21:37
  • or this is just related to S or C corporation? so in my case all the companies' dividends will be either 30% or 37%
    – huab
    Nov 17, 2021 at 21:54

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