If some of the stocks you own pay dividends, or a mutual fund you invest in made a capital gains distribution to you during the year, you'll receive a 1099-DIV form.
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A common reason for receiving a 1099-DIV form is because some of the stocks you own pay dividends, or a mutual fund you invest in made a capital gains distribution to you during the year. You won’t file the 1099-DIV with the Internal Revenue Service, but you will need the information it reports when preparing your tax return.
When you review your 1099-DIV, you’ll notice a number of boxes, some of which may have amounts reported in them and others that are blank. Each box reports something different and affects whether you must report it on your tax return, as well as where to report it.
1099-DIV reporting boxes
Box 1a of your 1099-DIV will report the total amount of ordinary dividends you receive, while box 1b reports the portion of box 1a that is considered to be qualified dividends.
If your mutual fund investment makes a capital gain distribution to you, it will be reported in box 2a.
If any state and federal taxes were withheld from your distributions, those amounts will be reported in boxes 4 for federal withholding and 14 for state withholding.
Ordinary & qualified dividends
For ordinary dividends that aren’t qualified, which is equal to box 1a minus 1b, you’ll pay tax at ordinary rates.
As of this writing, qualified dividends are taxed as long-term capital gains. This means that if your highest income tax bracket is 15 percent or less, you receive these dividends tax-free. If your marginal rate of tax is higher than 15 percent, your qualified dividends are taxed at 15, 20, or 23.8 percent depending on your income.
To be qualified, your dividends must be paid by a U.S. corporation or, if a foreign corporation, a tax treaty must exist between the U.S. and the country of incorporation, or the shares must trade on a U.S. stock exchange. Moreover, at a minimum, you must own the stock for more than 60 days and satisfy additional requirements.
Mutual fund distributions
When your mutual fund makes a distribution of its investment earnings to you and reports it in box 2a of Form 1099-DIV, the IRS allows you to treat the distribution like a long-term capital gain. This is beneficial since the same tax rules that apply to your qualified dividends also apply to mutual fund capital gain distributions, regardless of whether you hold the investment for 10 days or 10 years.
Schedule B implications
Your receipt of a 1099-DIV this year may also require you to prepare a Schedule B attachment to your tax return. Schedule B is necessary only if the total amount reported in box 1a of all 1099-DIVs you receive exceeds $1,500. However, Schedule B doesn’t change the amount of tax you’ll pay; it just requires you to report information about the filer of each 1099-DIV you receive and the amounts reported on each form. When you use TurboTax to prepare your tax return, we’ll ask you simple questions and fill in all the right forms for you.