Special Trivia Question for 12/1/26 - Steward and Captive Insurance

When premiums go into a micro-captive insurance company, they’re excluded from corporate income. However, if a physician owns a micro-captive insurance company and eventually wants to distribute accumulated profits, they’re generally taxed as qualified dividends.

For a physician in the top 37% tax brackets (and ignoring state/local tax rates), how much lower is the tax rate for qualified dividends (as of 2026)?

A. 13.2%
B. 16%
C. 17%
D. 22%
E. 37%

Qualified dividends have three tax brackets: 0%, 15%, and 20%. The difference between these and 37% represents choices C, D, and E, which are all incorrect.

The reason they are incorrect is that physicians in the 37% also pay the 3.8% Net Investment Income Tax (NIIT) on investment income.

So, a physician at the top tax bracket will also pay 20% on qualified dividends, plus the 3.8% NIIT. 37% - 23.8% = 13.2%. That’s $13,200 in permanent tax savings on $100,000 of premiums. I suspect many of you who had good MCAT scores got this right, because it was the only answer that wasn’t a whole number.

Where does choice B come from? It’s based on the 21% corporate tax rate (from which insurance companies qualifying under §831(b) are exempt).