If you receive more than $10 in dividends from stocks and mutual funds you own in a brokerage account, you will get a Form 1099-DIV from your broker. Your broker sends the same form to the IRS. Understanding the information on a 1099-DIV – see Resources for an example – makes it easier for you to report your dividend income properly and maybe save on your tax bill.
In most cases, brokers send you – and the IRS – a combined 1099 statement, including dividend and interest payments as well as proceeds from stock sales and regulated futures contracts. The summary sheet for the form typically includes a section labeled 1099-DIV. That's the section that covers dividends and other income distributions from stocks or mutual funds held in the account and corresponds to the Form 1040 Instruction material on dividend reporting . Although there's probably an itemized dividend report in the statement, you won't need to break out dividends from individual stocks when you file your return. Even on Schedule B for interest and dividend income, simply list the brokerage as the payer for the total dividends from the account.
Total Ordinary Dividends
Box 1a shows the total dividend payments credited to your securities account during the calendar year. That's the amount to enter on Schedule B or directly on Line 9a of Form 1040, if you don't need to include a Schedule B
Box 1b lists the dividends that qualify for the preferred tax rate of 15 percent – if your income puts you in the 25 percent or higher tax bracket. If your top marginal tax bracket is 15 percent or lower, you won't pay any tax on qualified dividends. (Note that these rates could change after 2012.) Stocks from bond mutual funds, many preferred stocks and some companies, such as real estate investment trusts, don't qualify for the lower dividend rate. Enter the qualified dividend information from Box 1b on Line 9b of your 1040. If you don't have a tax preparer or tax software, use the Qualified Dividends and Capital Gains Worksheet in the Form 1040 Instructions to realize your tax savings.
Even if you reinvested your dividends into additional shares of a mutual fund or a company's stock, the dividend amount will be included in Box 1a and Box 1b, and you must report it as income for the year the dividend is paid. Reinvested dividends become part of the tax basis for the fund or stock when you sell your shares.
Capital Gain Distributions
Some assets in a brokerage account, such as mutual funds and real estate investment trusts, may distribute income from capital gains. Capital gains distributions are shown in Box 2a. Include the amount on Line 13 of your 1040 or on Schedule D, if you need to include one.
You might also get some mutual fund distributions, particularly from closed-end funds, classified as return of capital and shown as nondividend distributions in Box 3. Nondividend distributions lower your tax basis for the security and affect your gain or loss when you sell your ownership units. Until that sale, nondividend distributions do not affect your taxes or need to be reported.
Any tax withheld from your account distributions will be entered in Box 4. Most brokerages have a default withholding rate – typically 28 percent – unless you specify otherwise. Include any amount from Box 4 in your entry on Line 62 of your tax return.
Unless the United States has a tax treaty specifying otherwise, foreign companies will deduct any appropriate tax from your dividend, reported in Box 6. You probably can reclaim the amount listed as a tax credit on Line 47 of your tax return. You also may need to file Form 1116.
Other boxes shown on a 1099-DIV seldom get used. Your 1099 statement should include an explanation for any entries, but it's probably worthwhile to consult a tax preparer for help in filing your return.
Distributions Not Included
Distributions from some exchange-traded securities – master limited partnerships and some royalty trusts, for example – aren't reported on your brokerage 1099-DIV. Master limited partnerships issue separate K-1 statements, detailing their distribution payments. Your broker should report cash distributions from grantor royalty trusts on a separate 1099-MISC form.
Dale Bye has spent more than 40 years in journalism, including 25 supervising reporters and editors at metropolitan newspapers and eight years as senior managing editor at a national sports magazine. He directed five newspaper-sponsored personal finance fairs. His fields of expertise include business and personal finance, sports, fitness and theater. Bye holds a Bachelor of Journalism from the University of Missouri.