Form 1099-DIV: Dividends and Distributions (2010) – A Complete Guide

Understanding tax forms can feel overwhelming, but Form 1099-DIV is simpler than it looks. This guide breaks down everything you need to know about reporting dividends and distributions for the 2010 tax year using plain language and authoritative information from the IRS.

What Form 1099-DIV Is For

Form 1099-DIV reports dividends and other distributions you received from stocks, mutual funds, and other investments during the 2010 tax year. Think of it as a receipt from your bank, brokerage, or investment company showing the income your investments generated.

If you own stocks that pay dividends, shares in a mutual fund, or investments in a Real Estate Investment Trust (REIT), you'll likely receive this form. The company or financial institution that paid you the dividends (called the "payer") must send you Form 1099-DIV if you received at least $10 in dividends during 2010, or if they withheld any federal income tax or foreign tax on your behalf—even if the dividend was less than $10.

The form breaks down different types of investment income into specific boxes: ordinary dividends (Box 1a), qualified dividends eligible for lower tax rates (Box 1b), capital gain distributions (Box 2a), nondividend distributions that represent a return of your original investment (Box 3), and several other specialized categories. Each type of income is taxed differently, which is why the IRS requires this detailed reporting.

You'll use the information on Form 1099-DIV to complete your personal tax return—typically Schedule B of Form 1040 or 1040A—so the IRS can verify that you've reported all your investment income correctly.

When You’d Use Form 1099-DIV (Late or Amended Filing)

For Recipients (Investors)

You should receive Form 1099-DIV from your payer by January 31, 2011 (for the 2010 tax year). If you don't receive it by early February, contact your financial institution. Sometimes payers discover errors after sending the original form and must issue a corrected Form 1099-DIV, which will have a "CORRECTED" box checked at the top.

If you receive a corrected form after you've already filed your tax return, you'll need to file an amended return using Form 1040X to correct the dividend amounts on your original return. Don't ignore corrected forms—the IRS computers match the information from your 1099-DIV to your tax return, and discrepancies can trigger notices or audits.

For Payers (Companies and Financial Institutions)

Companies and financial institutions must file Form 1099-DIV with the IRS by February 28, 2011 for paper filing, or March 31, 2011 for electronic filing. If you need more time, you can request an automatic 30-day extension by filing Form 8809 by the original due date.

If you discover an error after filing, you must prepare a corrected Form 1099-DIV. Mark the "CORRECTED" box, enter the correct information, and file it with Form 1096 (for paper filing) or through the FIRE electronic system. Don't mark the original return as "VOID"—file a new corrected return with accurate data. You must also send a corrected copy to the recipient so they can amend their tax return if necessary.

Key Rules or Details for 2010

Several important rules apply specifically to the 2010 tax year:

• Qualified Small Business Stock Enhancement: For qualified small business stock acquired between February 17, 2009, and January 1, 2011, the capital gains exclusion increased from 50% to 75%. This means if your mutual fund sold certain small business stocks during this period and reported the gain in Box 2c, you may qualify for a larger tax exclusion when you held the fund shares for more than 5 years.
• Qualified Dividends Tax Rates: Dividends reported in Box 1b (qualified dividends) are taxed at preferential rates—a maximum of 15% for most taxpayers, or 0% if your other income falls in the 10% or 15% tax bracket. To qualify, you must have held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Preferred stock dividends require a 90-day holding period within a 181-day window.
• December Dividends Paid in January: Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) that declared dividends in October, November, or December 2010 but actually paid them in January 2011 should still report them on the 2010 Form 1099-DIV. However, if backup withholding applied, it's withheld when the dividend is actually paid in January 2011, creating a reporting quirk where the dividend appears on the 2010 form but the withholding appears on the 2010 form as well.
• Electronic Filing Threshold: Payers filing 250 or more Forms 1099-DIV must file electronically through the FIRE system. This requirement applies separately to original returns and corrections—so if you file 400 original forms electronically but have only 75 corrections, the corrections can be filed on paper.
• Backup Withholding Rate: If you failed to provide your correct taxpayer identification number (TIN) to your payer, they must withhold 28% of your dividend payments as backup withholding and report it in Box 4.

Step-by-Step (High Level)

For Recipients (What to Do With Your Form 1099-DIV)

Step 1: Verify your information.

When you receive Form 1099-DIV, check that your name, address, and Social Security number are correct. Review all the dollar amounts and compare them to your own records.

Step 2: Understand the boxes.

Box 1a shows your total ordinary dividends—this goes on Line 9a of Form 1040 or 1040A. Box 1b shows qualified dividends eligible for lower tax rates—report this on Line 9b. Box 2a contains capital gain distributions from mutual funds, which go on Schedule D or directly on Form 1040 Line 13 if you have no other capital gains.

Step 3: Report on your tax return.

If your total dividends exceed $1,500, you must complete Schedule B. Attach it to Form 1040 or Schedule 1 to Form 1040A. Include all Forms 1099-DIV you received. Don't attach the actual 1099-DIV forms to your return—keep them with your tax records.

Step 4: Claim deductions or credits if applicable.

Box 5 shows investment expenses from nonpublicly offered mutual funds that you can deduct on Schedule A. Box 6 shows foreign tax paid that you may claim as either a deduction or credit on Form 1040.

For Payers (How to Prepare and File)

Step 1: Identify who needs a form.

File Form 1099-DIV for each person who received $10 or more in dividends, anyone for whom you withheld foreign tax or backup withholding (regardless of amount), or anyone who received $600 or more as part of a liquidation.

Step 2: Complete the form accurately.

Use the recipient's correct name and TIN exactly as provided on their Form W-9. Enter your company's information as the payer. Fill in the appropriate boxes—Box 1a for all ordinary dividends, Box 1b for the portion that qualifies for preferential rates, Box 2a for capital gain distributions, and so on.

Step 3: Provide copies to recipients.

Send Copy B to each recipient by January 31, 2011. You can mail paper forms or provide them electronically if the recipient consents.

Step 4: File with the IRS.

For paper filing, send Copy A of all Forms 1099-DIV along with Form 1096 (the transmittal form) to the appropriate IRS service center by February 28, 2011. Electronic filers must submit through the FIRE system by March 31, 2011. Group forms by type—don't mix 1099-DIV with other 1099 forms on the same Form 1096.

Common Mistakes and How to Avoid Them

• Mistake 1: Confusing qualified and ordinary dividends. Many taxpayers report all Box 1a dividends at ordinary income rates and forget to report Box 1b separately at the lower qualified dividend rates. Remember that Box 1b is a subset of Box 1a, not in addition to it. Report Box 1a on Line 9a and Box 1b on Line 9b—don't add them together.
• Mistake 2: Missing corrected forms. Mutual funds often issue corrected 1099-DIV forms in February or March after discovering errors in qualified dividend calculations. Always check your mail through mid-March before filing your taxes. If you receive a corrected form after filing, amend your return promptly.
• Mistake 3: Incorrect TIN matching for payers. Payers frequently submit forms with recipient names that don't exactly match IRS records, triggering penalty notices. Before filing, use the IRS TIN Matching program (available through IRS e-services) to verify that name and TIN combinations are correct. Even small differences—like "Robert" versus "Bob"—can cause mismatches.
• Mistake 4: Reporting dividend-like interest. "Dividends" from credit unions, savings and loan associations, and cooperative banks are actually interest and belong on Form 1099-INT, not 1099-DIV. Payers sometimes confuse these terms and file the wrong form.
• Mistake 5: Forgetting nominee reporting. If you receive a Form 1099-DIV for dividends that actually belong to someone else (for example, you hold stock in your name for your child), you must file a new Form 1099-DIV showing yourself as the payer and the actual owner as the recipient. You're acting as a "nominee" and have reporting obligations.
• Mistake 6: Ignoring the holding period requirement. Payers sometimes report dividends as "qualified" in Box 1b even when the holding period requirement hasn't been met. If you bought stock shortly before the ex-dividend date and sold it shortly after, those dividends don't qualify for preferential rates even if your 1099-DIV says otherwise. You're responsible for applying the correct tax treatment.

What Happens After You File

For Recipients

Once you file your tax return including your Form 1099-DIV information, the IRS computers match the amounts you reported against what payers submitted. If everything matches, you're done—your return processes normally. If there's a discrepancy, you may receive a CP2000 notice several months later proposing changes to your return and assessing additional tax.

Keep your Forms 1099-DIV with your tax records for at least three years. If you deducted investment expenses or claimed foreign tax credits, keep them for four years. You'll need these records if the IRS questions your return or if you sell the investment and need to calculate your cost basis.

For Payers

After you file Forms 1099-DIV with the IRS, the agency processes them and compares them to recipients' tax returns. If you submitted forms with incorrect TINs, you'll receive CP2100 or CP2100A notices instructing you to request correct TINs from recipients and potentially start backup withholding.

If you're required to file electronically but didn't (without an approved waiver), you may face penalties of $50 per form. Other penalties apply for late filing ($30-$100 per form depending on how late), failure to furnish correct statements to recipients, and intentional disregard of filing requirements (10% of the amount to be reported, with no maximum).

Keep your filing records for at least three years from the due date. If you imposed backup withholding, retain records for four years.

FAQs

Q1: I received a 1099-DIV with only $8 in dividends. Do I need to report it?

Yes. Even though payers aren't required to issue a 1099-DIV for amounts under $10, all dividend income is taxable and must be reported on your return regardless of amount. Report it on Schedule B if required, or directly on Form 1040/1040A if your total dividends are under $1,500.

Q2: What's the difference between Box 1a and Box 1b?

Box 1a shows your total ordinary dividends. Box 1b shows the portion of Box 1a that qualifies for the preferential 0%/15% capital gains tax rates. The amount in Box 1b is already included in Box 1a—it's not additional income. Qualified dividends get favorable tax treatment because they come from domestic corporations or qualifying foreign corporations and meet holding period requirements.

Q3: I held stock for only three weeks but received dividends marked "qualified" in Box 1b. Is this correct?

Probably not. To be qualified, you must hold stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Payers sometimes can't determine whether individual shareholders met this requirement, so they report dividends as qualified even when the holding period might not be satisfied. You're responsible for determining if you met the holding period and reporting correctly on your tax return.

Q4: What does Box 3 "Nondividend distributions" mean?

Nondividend distributions are a return of your original investment (your "cost basis"), not income. They're not taxable when you receive them, but you must reduce the cost basis of your investment by this amount. When you eventually sell the investment, you'll have a larger capital gain (or smaller loss) because your basis is lower. If nondividend distributions exceed your total cost basis, report the excess as a capital gain.

Q5: My mutual fund declared a dividend in December 2010, but I didn't receive the money until January 2011. When do I report it?

Report it for tax year 2010. Special rules allow RICs and REITs to treat dividends declared in October, November, or December but paid in January as if they were paid on December 31 of the prior year. Your Form 1099-DIV should show it as 2010 income.

Q6: I'm a business owner who pays dividends. Do I need to file Form 1099-DIV for my shareholders?

Yes, if you paid $10 or more in dividends to any shareholder during 2010. However, you don't need to file for corporate shareholders (they're exempt), and S corporations only file Form 1099-DIV for distributions from accumulated earnings and profits, not regular distributions of current-year income.

Q7: Can I deduct the investment expenses shown in Box 5?

Yes, if you itemize deductions on Schedule A. These expenses from nonpublicly offered regulated investment companies (typically private mutual funds) are deductible as miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. Note that the amount in Box 5 is also included in Box 1a as income, so you're being taxed on it unless you claim the deduction.

Sources: All information is from official IRS publications for tax year 2010:

Instructions for Form 1099-DIV (2010)
Form 1099-DIV (2010)
General Instructions for Certain Information Returns (2010)

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