Is there a dividend tax? Not all dividends are created equal when it comes to reporting them on your taxes. Here are a few pointers for reporting them.
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Companies can financially reward their investors by paying shareholders dividends. Certain dividend income may receive special tax treatment under the current tax code. This could potentially allow you to pay less income tax on some dividends.
Dividends are payments, usually earnings, from a company to certain shareholders. Generally, companies must declare dividends before paying them. This is typically done by the company's board of directors.
You may receive dividends if you own stocks, mutual funds, or exchange-traded funds (ETFs) that hold stocks in the fund.
For dividends to fall in the qualified dividend category, they typically must be paid by a U.S. corporation or a qualifying foreign corporation. Generally, you must also meet the holding period requirement.
The holding period for most types of qualified dividends requires you to have held the investment unhedged for more than 60 days during the 121-day period that starts 60 days prior to the ex-dividend date. An ex-dividend date is typically one day before the "date of record" or "record date." If you purchase a dividend generating investment on its ex-dividend date or after, you typically will not receive the next dividend payment. Generally, the holding period doesn't include the day you purchased an investment, but it does include the day you sold it.
Certain dividend payments aren't qualified dividends even if they're reported as such. These are listed in IRS publication 550 under the "Dividends that are not qualified dividends" section, and they typically include capital gains distributions and dividends you receive from a farmers' cooperative.
Ordinary dividends are the total of all the dividends reported on a 1099-DIV form. Qualified dividends are all or a portion of the total ordinary dividends. They're reported in box 1a on Form 1099-DIV.
While this sounds complicated, your financial institution should specify which dividends are qualified when they report your dividends to you on Form 1099-DIV. Qualified dividends appear in box 1b.
Mutual funds and ETFs may have state or municipal bonds as holdings. These bonds pay interest that's often exempt from federal income tax. When mutual funds or ETFs distribute this interest, they usually do it through an interest dividend.
Interest dividends from state or municipal bonds aren't typically taxable on the federal income tax level unless you're subject to the Alternative Minimum Tax (AMT). This income is usually reported in box 12 of Form 1099-DIV.
Brokerages and other companies are required to report your dividends on Form 1099-DIV by February 1. You pay taxes for your dividends with your income tax return, due on the April tax deadline.
You may have some dividends that you don't end up paying federal income tax on. Some people refer to these as tax-free dividends. This can happen if your dividends are qualified and your taxable income falls below a certain threshold or if they are tax-free dividends paid on municipal bonds.
Ordinary dividends are taxed using the ordinary income tax brackets for tax year 2023.
Qualified dividend taxes are usually calculated using the capital gains tax rates. For 2023, qualified dividends may be taxed at 0% if your taxable income falls below:
The qualified dividend tax rate increases to 15% for taxable income above:
Qualified dividend income above the upper limits of the 15% bracket requires paying a 20% tax rate on any remaining qualified dividend income. Depending on your specific tax situation, qualified dividends may also be subject to the 3.8% Net Investment Income Tax.
Ordinary dividends are taxed using the ordinary income tax brackets for tax year 2024
Qualified dividend taxes are usually calculated using the capital gains tax rates. For 2024, qualified dividends may be taxed at 0% if your taxable income falls below:
The qualified dividend tax rate increases to 15% for taxable income above:
Qualified dividend income above the upper limits of the 15% bracket requires paying a 20% tax rate on any remaining qualified dividend income. Depending on your specific tax situation, qualified dividends may also be subject to the 3.8% Net Investment Income Tax.
Form 1099-DIV Dividends and Distributions is the form financial institutions typically use to report information to you and the IRS about dividends and certain other distributions paid to you.
The financial institutions are required to fill out this form if your total dividends and other distributions for a year exceed $10. It includes information about the payer of the dividends, the recipient of the dividends, the type and amount of dividends paid, and any federal or state income taxes withheld.
Schedule B Interest and Ordinary Dividends is the schedule you use to list interest and ordinary dividends when filing your tax return with the IRS. As far as dividends go, you only have to use this form if you have over $1,500 in taxable interest or ordinary dividends in a tax year, or if you receive interest or ordinary dividends as a nominee.
The IRS states you must also use this form to report dividends if you are a signer on an account in a foreign country, or if you grant, transfer, or receive any funds to or from a foreign trust. You may have to use Schedule B for other situations as well.
Taxes on dividends haven't changed in the tax year 2023 or 2024 compared to the tax year 2022, other than inflation adjustments.
Dividends are reported to you on Form 1099-DIV, but you need to include all taxable dividends you receive regardless of whether or not you receive this form. To report your dividends on your tax return and pay the applicable taxes, you include the appropriate amounts on Form 1040 and fill out the related line items on Schedule B if required. TurboTax can fill out the proper forms for you by asking questions about dividends you receive throughout the tax year.
Brokerages and other companies required to report dividends on Form 1099-DIV are required to do so by February 1 of each year. Taxes for dividends are paid with your income tax return, due on April 15, 2024 this year.
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