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What Is Form 1099-DIV? Dividends And Distributions Mystery Solved

What Is Form 1099-DIV? Dividends And Distributions Mystery Solved
Ines Zemelman, EA
21 October 2022

If you invested your money in stock & mutual funds and received dividends and capital gain distribution then you will likely receive a Form 1099-DIV from the payers.

In this article, you will find out what is Form 1099-DIV, who can file it, how to file for Form 1099-DIV, how to report dividends without it, and what the deadline is.

What Is Form 1099-DIV?

The IRS states the purpose of Form 1099-DIV, Dividend, and distribution as follows

“This form is used by banks and other financial institutions to report dividends and other distributions to taxpayers and to the IRS.”

The IRS has issued detailed instructions for 1099-DIV. If you got this form this means you have received $10 or more in dividends.

This tax form contains the following pieces of information:

  • Dividends you received
  • Taxes withheld
  • Investment expenses
  • Capital distributions
  • Non-dividend distributions

Distribution vs Dividend

Not all distributions are classified as dividends. Distributions can either be classified as dividends or capital gains depending on the investment they belong to. If you have an investment in a corporation they will pay you dividends from their after-tax profits once they retain a percentage of it. When you receive a distribution from a mutual fund it can either represent the allocation of dividends, interest, or capital gains.

Capital Gains vs Dividends

When you sell your capital asset the difference between its cost and the proceeds results either in capital gains or loss whereas a dividend is declared by the board of directors authorized to do so. It is distributed among shareholders from a company’s profit after accounting for taxes.

Who Can File Form 1099-DIV?

The following entities and institutions are required to provide a copy of the form 1099-DIV to the investors and the IRS if they paid dividends on their earnings:

  • Bank
  • Corporations
  • Investment companies
  • Financial institutions

How To File For 1099-DIV?

Now that you know what is Form 1099-DIV let’s look at how to file for it. The Form 1099-DIV has Copy A and Copy B.

Copy A

It appears in red and is for informational purposes only. The IRS has strictly prohibited printing and filing copies downloaded from the website since it is non-scannable. It imposes a penalty on people who do this. So make sure you request the IRS to send you a scannable copy A.

Copy B

The website version can be downloaded and printed.

It has two parts:

  1. For the state tax department
  2. For recipient

Each form requires the payer's identity and recipient's personal details. And then it asks for dividends and distributions received. Now let us look at some of the common boxes that are relevant in most cases.

Box 1: Dividends Ordinary vs Qualified

Box 1a: Total Ordinary Dividends

Dividends are the most common distributions you receive. They are paid out of earnings. But what are ordinary dividends? The ordinary dividends are taxed at your income tax rate unless they are qualified dividends.

Box 1b: Qualified Dividends

Qualified dividends are taxed at a lower capital gain tax rate provided they meet the following criteria:

  • They must be paid by a US corporation.
  • You held the stock as an owner for 2 months during the 4 months period that begins 2 months before the ex-dividend date.

Dividends received from a foreign corporation will be qualified if a tax treaty exists between the US & the country of incorporation. Also, if the shares of a foreign corporation trade on a US stock exchange then the dividends they pay will be qualified.

You might be wondering how will you know that the dividends you received are qualified. Well, the corporations, banks, or financial institutions paying the dividend are obliged to correctly identify the type and amount for you.

Box 2a: Total Capital Gain

The capital gain tax rate will be determined by how long you held a capital asset. Short-term capital gains are taxed at an ordinary income tax rate whereas long-term capital gains have lower tax rates.

How To Report Dividends Without 1099-DIV?

Consider a scenario where you got your dividends but haven't received a Form 1099-DIV. It doesn’t mean you don't have to report it. If you have received interest or ordinary dividend during the tax year and the amount exceeds $1500 you are required to fill out Schedule B along with the tax Form 1040.

It is worth noting that if you hold a financial asset offshore you will have to fulfill the requirement of the Foreign Account Tax Compliance Act (FACTA)

When Is The Deadline?

As an investor, you can receive multiple 1099-DIV and you should report them while preparing your individual tax return. You should receive Form 1099-DIV by January 31st every year from banks, financial institutions, corporations & investment companies. You need the information it has while filing your tax return.

Now you are aware of what is Form 1099-DIV & how it works in the taxation framework. But it is still a good idea to seek tax advice from a specialist. The tax professional’s assistance in your tax preparation will make sure your reported income and computed tax are in compliance with the tax laws and regulations.

Ines Zemelman, EA
Founder of TFX