Form 1099-DIV: Dividends and Distributions (2012)

What Form 1099-DIV Is For

Form 1099-DIV is an information return used by banks, brokerage firms, mutual funds, and other financial institutions to report dividends and distributions they paid to you during the tax year. Think of it as a receipt showing all the investment income you earned from stocks, mutual funds, and similar investments.

The form reports several types of investment income: ordinary dividends (regular payments from stocks and mutual funds), qualified dividends (eligible for lower tax rates), capital gain distributions (when mutual funds sell investments at a profit and pass those gains to shareholders), and exempt-interest dividends (tax-free income from certain municipal bond funds). If you received $10 or more in dividends, had any foreign taxes withheld, had federal income tax withheld under backup withholding rules, or received $600 or more as part of a company liquidation, you should receive this form.

You don't mail Form 1099-DIV to the IRS with your tax return—it's for your records. However, you must report the income shown on it when filing your Form 1040, 1040A, or 1040EZ. The financial institution sends a copy directly to the IRS, so they already know about this income. IRS Form 1099-DIV Instructions

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

You should receive your Form 1099-DIV by January 31, 2013 for the 2012 tax year. If you don't receive it by early February, contact your financial institution immediately. Sometimes addresses change, forms get lost in the mail, or the institution simply forgets to send one.

If you file your tax return before receiving all your 1099-DIV forms and later discover you missed some dividend income, you'll need to file an amended return using Form 1040X (Amended U.S. Individual Income Tax Return). This corrects your originally filed return and ensures you've reported all taxable income. The IRS can assess penalties if they discover unreported dividend income that you should have known about.

If you receive a corrected Form 1099-DIV (marked "CORRECTED" at the top) after filing your return, check whether the correction changes your tax liability. If the correction shows significantly different amounts that affect your taxes owed or refund, you'll need to file Form 1040X. Minor corrections that don't change your tax liability may not require action, but keep the corrected form with your records.

Missing forms are more common than you'd think. If you owned investments through multiple accounts or switched brokers during the year, you might receive several 1099-DIV forms. Don't assume you've received them all just because you got one or two—review your investment statements to ensure you've accounted for all dividend-paying accounts. IRS Publication 550

Key Rules or Details for 2012

Several important rules governed Form 1099-DIV reporting in 2012. First, the $10 reporting threshold meant that institutions only had to issue forms if you received at least $10 in dividends during the year. However, even if you received less than $10, you're still legally required to report that income on your tax return.

Qualified dividends received special tax treatment in 2012. If dividends met certain requirements—primarily that you held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date—they qualified for preferential tax rates. For most taxpayers, qualified dividends were taxed at 15%, while those in the 10% or 15% ordinary income brackets paid 0% on qualified dividends. This contrasted sharply with ordinary dividends, which were taxed at your regular income tax rate (up to 35% in 2012).

Not all dividends qualified for these lower rates. Dividends on stocks held for too short a period, dividends from certain foreign corporations that didn't meet specific treaty requirements, dividends paid by real estate investment trusts (REITs) that weren't designated as qualified, and dividends on employee stock ownership plan (ESOP) shares didn't qualify.

Foreign tax withholding was another important feature. If you owned foreign stocks or international mutual funds, the foreign government may have withheld taxes on your dividends. Box 6 of Form 1099-DIV shows these foreign taxes paid, which you may be able to claim as either a tax credit or an itemized deduction on your U.S. return, helping you avoid double taxation.

A significant change for 2012 was that exempt-interest dividends moved to Form 1099-DIV from Form 1099-INT. These dividends from municipal bond mutual funds remained tax-free for federal purposes but still had to be reported on your return as an information item. However, exempt-interest dividends from private activity bonds might be subject to the alternative minimum tax (AMT).

Backup withholding at 28% applied if you failed to provide your correct Social Security number to the financial institution or if the IRS notified the payer that you had underreported dividend income in previous years. This withholding appeared in Box 4 and counted as federal income tax withheld. IRS Form 1099-DIV Instructions

Step-by-Step (High Level)

Step 1: Receive and review your forms. By early February, gather all your 1099-DIV forms. Check that your name, address, and Social Security number are correct. Compare the amounts to your year-end investment statements to ensure accuracy.

Step 2: Understand each box. Box 1a shows total ordinary dividends—this is the starting point. Box 1b shows qualified dividends (a subset of Box 1a eligible for lower tax rates). Box 2a reports capital gain distributions from mutual funds. Boxes 3-5 show nondividend distributions, federal tax withheld, and investment expenses. Boxes 6-7 report foreign taxes paid. Boxes 8-9 relate to liquidation distributions (uncommon for most investors). Boxes 10-11 show tax-exempt interest dividends.

Step 3: Determine which tax form to use. If your total interest and dividends each exceed $1,500, you must file Schedule B (Interest and Ordinary Dividends) along with your Form 1040 or 1040A. Below those thresholds, you can report directly on the main form lines. If you have capital gain distributions and no other capital transactions, you can often report them directly on Form 1040, line 13 (or Form 1040A, line 10).

Step 4: Report ordinary dividends. Add up Box 1a amounts from all your 1099-DIV forms. Report the total on Form 1040, line 9a or Form 1040A, line 9a. If you must file Schedule B, list each payer and amount there, then transfer the total to your main form.

Step 5: Report qualified dividends. Add up Box 1b amounts from all forms and report on Form 1040, line 9b or Form 1040A, line 9b. You'll use the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040 instructions) to calculate your tax using the preferential rates.

Step 6: Report other amounts. Capital gain distributions go on Schedule D or directly on Form 1040, line 13. Exempt-interest dividends go on line 8b (they're not taxable but must be reported). Federal tax withheld (Box 4) goes on the payments section of your return. Foreign taxes (Box 6) may require Form 1116 if you're claiming the foreign tax credit.

Step 7: Keep your forms. Retain all 1099-DIV forms for at least three years in case of an IRS audit. IRS Publication 550

Common Mistakes and How to Avoid Them

Mistake #1: Reporting qualified dividends twice. The most common error is adding Box 1a and Box 1b together. Box 1b is already included in Box 1a—it's not additional income. Report Box 1a as ordinary dividends and Box 1b separately as qualified dividends, but don't add them together.

Mistake #2: Missing late-arriving forms. Some forms arrive in February, others trickle in through March. Don't file your tax return until you're certain you've received all 1099-DIV forms. Check December statements to see which accounts paid dividends, then wait for corresponding forms.

Mistake #3: Ignoring corrected forms. If you receive a corrected 1099-DIV after filing, don't ignore it hoping the IRS won't notice. The issuer sent them a corrected copy too. File Form 1040X if the correction significantly changes your tax liability.

Mistake #4: Forgetting to report small amounts. Just because you didn't receive a 1099-DIV (amounts under $10) doesn't mean the income isn't taxable. Technically, all dividend income must be reported, though the IRS focuses enforcement efforts on reported amounts.

Mistake #5: Misunderstanding tax-exempt dividends. "Tax-exempt" means exempt from federal income tax, not that you can ignore them. Report exempt-interest dividends (Box 10) on line 8b of your return. They can affect other tax calculations, including Social Security benefit taxation and student loan interest deduction phase-outs.

Mistake #6: Not claiming foreign tax credits. Many taxpayers pay foreign taxes (Box 6) but forget to claim them. If you paid foreign taxes, you can usually claim them as a credit or deduction, recovering some of that money. For smaller amounts (under $300/$600), you can claim the credit without filing Form 1116.

Mistake #7: Overlooking nondividend distributions. Box 3 shows nondividend distributions, which are returns of your investment capital, not taxable income. However, you must reduce your cost basis in the investment by this amount. Failing to track this means you'll overpay taxes when you eventually sell the investment. IRS Form 1099-DIV Instructions

What Happens After You File

Once you file your tax return including Form 1099-DIV income, the IRS's computers match the information you reported against copies of 1099-DIV forms sent directly by financial institutions. This matching process typically occurs 12-18 months after you file.

If everything matches, you'll likely hear nothing from the IRS—no news is good news. Your return is processed, your refund (if any) is issued, and the tax year closes without incident for most taxpayers.

If the IRS finds discrepancies—you reported less dividend income than the 1099-DIV forms show—you'll receive a CP2000 notice (Proposed Changes to Your Tax Return). This isn't technically an audit, but rather an automated matching notice. It explains the discrepancy and proposes additional tax, penalties, and interest. You have the right to respond, providing documentation if you believe the IRS is wrong or agreeing with the changes if they're correct.

Backup withholding creates an interesting situation. If your Form 1099-DIV shows federal income tax withheld (Box 4), that money has already been sent to the IRS on your behalf. Make sure to report it in the payments section of your return (Form 1040, line 62) so you get credit for it. Otherwise, you've essentially made an interest-free loan to the government.

If you later discover you made an error reporting 1099-DIV income, you can file Form 1040X within three years of the original return due date (or two years from when you paid the tax, whichever is later) to claim a refund. If you owe additional tax, file the amended return as soon as possible to minimize interest and potential penalties.

The statute of limitations generally gives the IRS three years to audit your return, though this extends to six years if you substantially understated income (by 25% or more). Keep your 1099-DIV forms and supporting documentation for at least three years, or longer if you have complex situations like nondividend distributions that affect future-year cost basis. IRS Publication 550

FAQs

Q1: Do I need to attach Form 1099-DIV to my tax return?

No. Form 1099-DIV is for your records only. You report the information on your tax return, but you don't mail the actual form to the IRS. They receive copies directly from the financial institutions. Keep your 1099-DIV forms in a safe place in case of questions or an audit.

Q2: What if my 1099-DIV shows dividends I reinvested to buy more shares?

Reinvested dividends are still taxable income in the year earned, even though you never received cash. Report them just like any other dividends. The good news is that reinvested dividends increase your cost basis in the investment, which reduces your taxable gain when you eventually sell.

Q3: I sold my stock in November, but I'm still receiving dividends. Why?

If dividends were declared before you sold but paid after, or if they were earned up to the sale date, you'll receive a 1099-DIV for that portion of the year you owned the stock. This is normal and the amounts should be smaller than if you'd owned the stock all year.

Q4: Can I deduct investment expenses shown in Box 5?

Yes, if you itemize deductions on Schedule A. Box 5 investment expenses (from non-publicly offered mutual funds) are deductible as miscellaneous itemized deductions subject to the 2% of adjusted gross income threshold. However, this amount is already included in Box 1a, so you report Box 1a as income and claim Box 5 as a deduction if you qualify.

Q5: What's the difference between ordinary and qualified dividends?

It's all about the tax rate. Ordinary dividends are taxed at your regular income tax rate (up to 35% in 2012). Qualified dividends get preferential treatment—taxed at 0% or 15% depending on your tax bracket. Most dividends from U.S. corporations and certain foreign corporations qualify, provided you held the stock long enough (generally more than 60 days).

Q6: I received multiple 1099-DIV forms with the same payer name. Is this an error?

Not necessarily. You might have multiple accounts with the same institution (a taxable brokerage account and a separate dividend reinvestment plan, for example). Each account generates its own 1099-DIV. You need to report all of them—add up all the forms from all payers.

Q7: The IRS sent me a notice saying I didn't report dividend income, but I never received a 1099-DIV. What do I do?

Contact the financial institution immediately to request your copy. You're responsible for reporting all dividend income even if you didn't receive the form—it may have been mailed to an old address, or you may have overlooked it. If the IRS is correct, file Form 1040X to correct your return and minimize penalties. If you believe the IRS is wrong (the account isn't yours, for example), respond to their notice with documentation explaining the situation.

For more information: Visit IRS.gov or consult IRS Publication 550, Investment Income and Expenses, available at IRS.gov/publications.

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