Understanding form 1099-DIV: Dividend income

What is Form 1099-DIV?

Form 1099-DIV reports your dividend income to the IRS. You will also get a copy for your records and to help you complete your tax return.

The company or other organization that pays the dividends may send you Form 1099-DIV by itself. Or, your 1099-DIV may be part of a consolidated 1099 statement from a financial institution that handles more than one investment for you.

Ordinary vs. qualified dividends

Form 1099-DIV reports two types of dividend income: ordinary and qualified. The distinction is about whether the dividend “qualifies” for a lower tax rate, which depends on a variety of IRS requirements, including who paid the dividend and how long you owned the underlying investment.

When you receive Form 1099-DIV, all the dividends you received from the payer will appear in Box 1a. If you have qualified dividends, you’ll find that portion in Box 1b. If you don’t have any qualified dividends, Box 1b will be blank.

• Standard federal income tax rates apply to ordinary dividends.
• Tax rates of 0%, 15%, or 20% apply to qualified dividends, depending on your total taxable income.
• Ordinary and qualified dividends both count as investment income for the purposes of the Earned Income Tax Credit (EITC) and your net investment income.

Capital gains and nondividend distributions

If you own shares in mutual funds, exchange-traded funds, or real estate investment trusts, among other specific types of investment vehicles, you may receive income when that organization sells some of its underlying investments. For example, your mutual fund may own stock in one company for a while and decide to sell. These payments, formally called distributions, are a “return of capital” to shareholders and also appear on a 1099-DIV.

• Box 2a reports capital gains you may receive when mutual funds you own sell their assets (e.g., selling a stock they owned). Form 1099-DIV, combination 1099 statements, and other tax documents from the payer will clarify which amounts of the mutual fund distributions to report as dividends, interest, capital gains, and other categories of income.
• Box 2b is for mutual funds and/or real estate investment trusts that report unrecaptured depreciation from real estate assets they sold.
• Box 2c reports Section 1202 gains that result from the sale of qualified small-business stock, such as investments in early-stage startups directly. or through a mutual fund.
• Box 3 reports nondividend distributions that occur when an investment you own returns assets to you that are not profits. For example, if you receive additional shares in a company due to a stock split. Although you won’t owe taxes on them until you sell them, they appear on your 1099-DIV for recordkeeping.

Taxes withheld from dividend payments (Boxes 4, 7, and 8)

Generally, the company that pays you a dividend will only withhold federal income tax when you, as the recipient, meet specific, fairly uncommon criteria. If this applies to you, Box 4 reports the amount of federal income tax they withheld.

If the payer has foreign holdings—for example, a mutual fund that owns stock in foreign corporations— foreign taxes may be withheld from the dividend payments and reported in Box 7, with the foreign country named in Box 8. This information is crucial for determining if there is preferential treatment under any existing tax treaties in addition to the foreign tax credit or deduction.

Dividends and distributions from life insurance companies

Dividends you receive as distributions from life insurance policies are not included in a 1099-DIV. Instead, the income appears on Form 1099-R. Payments made directly to stockholders are reported on Form 1099-MISC or 1099-NEC as needed.

How to file and use Form 1099-DIV

The company or organization that paid the dividends, or the firm handling the investments, files Form 1099-DIV with the IRS and sends you a copy by January 31, of the filing year.

For your federal income tax return, you will use the information on Form 1099-DIV to report your dividend income on either your Schedule B or your Form 1040, Lines 3a and 3b.

You must use Schedule B when your total interest income and/or dividend income is $1,500 or more.  When your dividend income is less than $1,500, you still have to report it on Form 1040, but you don’t need to file Schedule B.

Don’t forget to answer the questions in Part III of Schedule B about foreign investment income.

Remember, even if you don’t receive Form 1099-DIV, you must report all your income on your federal tax returns. A Jackson Hewitt Tax Professional can make sure you get all the details right, so your tax return is 100% accurate.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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