Form 1099-DIV: Dividends and Distributions (2011)
If you've received dividends from stocks, mutual funds, or other investments, you've likely encountered Form 1099-DIV. This tax form is how companies and financial institutions report dividend payments to you and the IRS. This guide breaks down everything you need to know about the 2011 version of Form 1099-DIV in plain English.
What Form 1099-DIV Is For
Form 1099-DIV, officially titled "Dividends and Distributions," is an information return used by payers (such as corporations, mutual funds, brokerages, and real estate investment trusts) to report dividend income and certain distributions paid to you during the tax year. Think of it as a receipt showing what investment income you earned.
The form reports several types of payments: ordinary dividends from stock holdings, qualified dividends eligible for lower tax rates (zero or 15% maximum in 2011), capital gain distributions from mutual funds and REITs, nondividend distributions (returns of your original investment), and liquidation distributions from companies shutting down.
Companies must issue this form if they paid you $10 or more in dividends, withheld any foreign tax on your behalf, withheld federal income tax under backup withholding rules, or paid you $600 or more as part of a corporate liquidation. The information flows directly to specific lines on your Form 1040 or 1040A tax return.
When You’d Use Form 1099-DIV (Late or Amended Filings)
Under normal circumstances, payers must furnish your copy by January 31, 2012 (for tax year 2011), and file with the IRS by February 28, 2012 (paper) or April 2, 2012 (electronic).
However, you may need to deal with late or amended situations. If you receive a corrected Form 1099-DIV after filing your return (marked "CORRECTED" in the checkbox), you must file an amended return (Form 1040X) to correct your reported income. Payers issue corrections when they discover errors in amounts, incorrect taxpayer identification numbers, or wrong recipient information.
Special Timing Provision (RICs/REITs)
The 2011 rules included a special timing provision: if a regulated investment company (RIC) or real estate investment trust (REIT) declared a dividend in October, November, or December 2011 but paid it in January 2012, it's still reported on the 2011 Form 1099-DIV. This means you might receive your 2011 form later than expected.
If you're missing a Form 1099-DIV entirely, contact the payer first. If the form doesn't arrive, you're still legally required to report the income using your brokerage statements or records.
Key Rules or Details for 2011
$10 Minimum Threshold and Other Triggers
The 2011 tax year included several specific rules and thresholds. The $10 minimum threshold meant payers only had to issue forms if total ordinary dividends reached this amount (though forms were also required for any foreign tax withholding, backup withholding, or liquidation payments of $600+).
Qualified Dividends Holding Periods
Qualified dividends received special treatment. To qualify for the favorable zero or 15% tax rates, dividends had to come from domestic corporations or qualified foreign corporations, and you had to meet strict holding period requirements. For common stock, you must have held shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. For preferred stock with dividends attributable to periods exceeding 366 days, the requirement increased to more than 90 days during the 181-day period starting 90 days before the ex-dividend date.
Backup Withholding (28% in 2011)
The backup withholding rate was 28% in 2011. Payers withheld this amount if you failed to provide a correct taxpayer identification number, the IRS notified the payer of under-reporting, or you didn't certify exemption from backup withholding.
Foreign Dividends and Qualified Status
For foreign dividends, special rules determined eligibility for preferential rates. Foreign corporations qualified if incorporated in a U.S. possession, eligible for benefits under a comprehensive tax treaty with information exchange provisions, or if their stock was readily tradable on established U.S. securities markets.
Section 1202 Small Business Stock
Section 1202 small business stock offered exclusion opportunities—50% of gain could be excluded for qualifying stock held more than five years, with enhanced 75% and 100% exclusions for stock acquired during specific periods in 2009-2011.
End of TIN Truncation Pilot
One notable change: the pilot program for truncating taxpayer identification numbers on paper statements ended in 2011, requiring payers to show complete identifying numbers.
Step-by-Step (High Level)
For Recipients (Taxpayers)
Step 1: Receive and Review
By late January or early February, receive Form 1099-DIV from each payer. Verify your name, address, and Social Security number are correct. Check amounts against your records.
Step 2: Understand Each Box
Box 1a shows total ordinary dividends. Box 1b shows the portion qualifying for lower tax rates. Box 2a reports capital gain distributions. Boxes 3-9 contain specialized information about nondividend distributions, backup withholding, investment expenses, foreign taxes, and liquidation payments.
Step 3: Report on Your Tax Return
Enter Box 1a amounts on Form 1040 line 9a (or 1040A line 9a). Report Box 1b qualified dividends on line 9b. Capital gain distributions from Box 2a go to Schedule D line 13 (or directly on Form 1040 line 13 if you have no other capital transactions). Claim backup withholding from Box 4 as a tax payment. Consider foreign taxes from Box 6 as either a deduction or credit.
Step 4: Keep Records
Retain all Forms 1099-DIV with your tax records for at least three years (seven years is safer).
For Payers (Companies/Brokers)
Identify reportable payments, calculate all required amounts, prepare forms with accurate taxpayer identification numbers, and file by the deadlines—furnish to recipients by January 31, 2012, and file with IRS by February 28, 2012 (paper) or April 2, 2012 (electronic).
Common Mistakes and How to Avoid Them
Mistake #1: Confusing Dividends with Interest
Bank "dividends" from savings accounts are actually interest (reported on Form 1099-INT). Only money market funds correctly appear on 1099-DIV.
Mistake #2: Overlooking Qualified Dividend Requirements
Not all dividends in Box 1b automatically qualify for lower rates. You must personally meet holding period requirements. Review your actual holding periods, especially for short-term trading.
Mistake #3: Missing Nominee Situations
If you received a 1099-DIV including dividends belonging to someone else, you're a "nominee" and must file Forms 1099-DIV for the actual owners. Otherwise, the IRS thinks you received all the income.
Mistake #4: Ignoring Nondividend Distributions
Box 3 amounts reduce your stock basis. Track these adjustments to calculate correct capital gains when selling.
Mistake #5: Forgetting Box 5 Investment Expenses
These expenses from nonpublicly offered mutual funds are included in Box 1a income but may be deductible on Schedule A (subject to 2% AGI floor).
Mistake #6: Mishandling Backup Withholding
Box 4 amounts represent tax already paid. Claim it as a payment on your return—failing to claim it means overpaying your taxes.
Mistake #7: Wrong Timing
Report income based on the form's tax year, not when you physically received the paperwork.
What Happens After You File
Once you've filed your return including Form 1099-DIV information, the IRS performs automated matching, comparing forms they received against what you reported. This typically occurs several months after the filing deadline.
If the IRS finds a match, nothing happens—your return processes normally. If they discover a mismatch, you'll receive a CP2000 notice proposing changes to your return. You can agree and pay additional tax, interest, and possible penalties, or disagree and provide supporting documentation.
Penalties can apply for substantial misreporting—the accuracy-related penalty is 20% of understated tax for negligence. However, reasonable cause exceptions exist for honest mistakes with good faith explanations.
For state taxes, most states use federal income as a starting point, so dividend income flows through to state returns. Check your state's specific requirements as treatment varies.
Future implications include basis tracking. Dividends reinvested increase your basis; nondividend distributions reduce it. Maintaining accurate records prevents overpaying tax when you eventually sell the stock.
FAQs
Q1: What if I never received a Form 1099-DIV but I know I earned dividends?
Report all dividend income even without a form. Contact the payer for a duplicate. If unavailable, use brokerage statements or records. The IRS may have received the form even if you didn't.
Q2: Can I throw away Forms 1099-DIV from previous years?
Keep tax records for at least three years from the return's filing date (seven years is better practice). Digital scans are acceptable if legible.
Q3: I received a corrected 1099-DIV after filing. What should I do?
File Form 1040X (Amended Return) if the correction changes your tax liability. Do this within three years of the original filing deadline. Include the corrected 1099-DIV with your amended return.
Q4: What's the difference between ordinary and qualified dividends?
All qualified dividends are ordinary dividends, but not all ordinary dividends are qualified. Ordinary dividends (Box 1a) are the total. Qualified dividends (Box 1b) are the portion eligible for favorable 15% maximum tax rates, requiring proper holding periods and qualifying corporations.
Q5: Do I report dividends from my IRA or 401(k)?
No. Dividends inside tax-advantaged retirement accounts aren't currently taxable and don't appear on Form 1099-DIV. You receive Form 1099-R only when taking distributions.
Q6: Why does my Form 1099-DIV show backup withholding in Box 4?
This occurs when you failed to provide a correct taxpayer identification number or the IRS notified the payer of under-reporting. The payer withheld 28% and sent it to the IRS. Claim this on Form 1040 line 62 as a payment. Correct the issue (usually by providing form W-9) to stop future withholding.
Q7: What if the name or Social Security number is wrong?
Contact the payer immediately for a corrected form. Mismatched information causes IRS processing problems. If you can't get a correction before the filing deadline, report the income correctly and attach an explanation statement.
This guide provides general information about Form 1099-DIV for tax year 2011 based on official IRS instructions. Tax situations vary—consult a qualified tax professional for guidance specific to your circumstances.
