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Guide to Taxes on Dividends

Updated for Tax Year 2016


OVERVIEW

If you received dividends from any of your investments this year, you may have to pay income tax on these payments. The Internal Revenue Service considers dividends to be taxable income. So regardless of the amount of your dividend payments, you should report them on your tax return.


About dividends

Dividends are payments you receive from certain investments, such as corporate stocks and shares in a mutual fund. The term "ordinary dividends” includes both qualified and nonqualified dividends, which are taxed at different rates.

Qualified dividends, such as most of those paid on corporate stocks, are taxed at long term capital gains rates — which are lower than ordinary income tax rates. Nonqualified dividends, however, are taxed at the higher ordinary income tax rates.

In order to treat your dividends as qualified dividends, the IRS requires that you hold your stock investment for more than 60 days during the 121-day period that begins 60 days prior to the ex-dividend date — which is the day after a corporation's board declares a dividend payment to shareholders.

Form 1099-DIV

Typically, if you receive dividends of $10 or more, you’ll get a Form 1099-DIV “Dividends and Distributions” from your appropriate financial institution. This form reports all dividends, capital gain distributions, non-dividend distributions and the amount of tax, if any, withheld from your payments during the year.

If you choose to have federal income tax withheld from your payments, this amount will appear in Box 4. If you receive dividends from multiple financial institutions, you should receive one Form 1099-DIV from each institution. It’s important to note that even if you do not receive a Form 1099-DIV, you should still report your dividends on your tax return.

Schedule B

Taxpayers use Schedule B “Interest and Ordinary Dividends” to report their dividend and interest earnings if the combined total exceeds $1,500. This form lists each financial institution you received dividends from, as well as the amount from each 1099-DIV. Part 1 of the form is used for bank interest, while Part 2 is used for dividend payments. If the total of your taxable interest or dividends exceed $1,500, you’ll need to complete Part 3 of the form to report any interest you have in a foreign trust or financial account.

When you use TurboTax to prepare your taxes, you won’t have to worry about where to enter this information. We’ll ask about your dividend income and fill in all the right forms for you.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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