Dividends are distributions of money, stock, or other property a corporation pays to you because you own stock in that corporation. You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Most distributions are paid in cash. An individual may also receive distributions such as additional stock, stock rights, or other property or services.

You should receive a Form 1099-DIV, Dividends and Distributions, from each payer for distributions of $10.00 or more. However, you must report all taxable dividends even if you do not receive a statement.

The 1099 dividends statement should break down total gross dividends into several categories, such as ordinary dividends nontaxable distributions, and capital gain distributions.

Ordinary dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation. All ordinary dividends are fully taxable.

Nontaxable distributions can be made in the form of a return of capital or a tax-free distribution of additional shares of stock or stock rights. A return of capital is a return of some or all of your investment in the stock of the company. What you paid for the stock is your original basis in the stock. If you received the stock as a gift or as an inheritance, your basis may be different. See Publication 551, Basis of Assets and Publication 550, Investment Income and Expenses. A return of capital reduces the basis of your stock and is not taxed until your basis in the stock is fully recovered. Once the basis of your stock has been reduced to zero, any further return of capital is a capital gain.

Capital gain distributions are paid by mutual funds and certain investment companies from their net realized long-term capital gains. Capital gain distributions are always reported as long-term capital gains. Report any capital gain distribution that an investment company or mutual fund credited to you even if you did not actually receive it in cash.

Report gross dividends that are over $400 on Schedule B of Form 1040 or Schedule 1 of Form 1040A. From the Schedule B or Schedule 1, ordinary dividends are reported on line 9 on the 1040 or 1040A. If your total gross dividends include capital gain distributions, you cannot use the 1040A form. You must use the 1040 form with Schedule B and Schedule D. Report capital gain distributions from line 7 of Schedule B to line 13 of Schedule D. If you have other capital gains or losses to report for the year, you do not need to use Schedule D. Just report your distributions on line 13 of Form 1040. See the Form 1040 Instructions. You cannot use Form 1040A. Report any capital gain distribution that an investment company or mutual fund credited to you even if you did not actually receive it in cash.

You should receive a Form 1099- DIV, Dividends and Distributions, from each payer for distributions of $10 or more. However, you must report all taxable dividends even if you do not receive a statement.

The 1099- DIV statement should break down the distribution into the various categories. If it does not, you should contact the payer.

You must give your correct social security number to the payer of your dividend income. If you do not, you may be subject to a penalty and to back-up withholding. Select Topic 307 for more information on back-up withholding.

When receiving dividends, you may have to pay estimated tax. Select Topic 355 for information on estimated tax.

Additional information on dividend income can be found in Publication 550, Investment Income and Expenses, and Publication 4, Mutual Fund Distributions. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.

Tax Topics & FAQs | 1999 Tax Year Archives | Tax Help Archives | Home