What Form 1099-DIV Is For
IRS Form 1099-DIV (2016) reports dividend income, ordinary dividends, qualified dividends, and capital gains distributions that financial institutions, mutual funds, and domestic corporations pay during the tax year. These dividends paid must be reported as taxable income on the taxpayer’s tax return, even when reinvested in a taxable brokerage account. The Internal Revenue Service uses this tax form to match dividends received with dividends reported for federal income tax and state taxes.
The form applies to dividend payments from mutual funds, preferred stocks, real estate investment trusts, and certain qualified foreign corporations. It also includes foreign tax, exempt interest dividends, and total ordinary dividends that affect the taxpayer’s overall tax liability. Form 1099-DIV helps ensure compliance with the Internal Revenue Code for all dividend income and capital gain distributions.
When You’d Use Form 1099-DIV
A taxpayer uses Form 1099-DIV when preparing a tax return for a prior tax year to report dividends received from mutual funds, domestic corporations, and other financial institutions. This includes ordinary dividends, which are typically taxed at the ordinary income tax rate, and qualified dividends, which may be subject to the lower qualified dividend tax rate. Taxable dividends, nonqualified dividends, and capital gains must all be included as part of taxable income.
Form 1099-DIV is also used when filing an amended return if the dividends reported on the original return change or if a corrected form is received from a financial institution or third-party provider. Taxpayers who prepare their own taxes or work with a tax preparer must include every dividend payment listed to avoid tax implications. Proper reporting ensures accurate federal taxes and reduces issues during tax season.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Key Rules or Details for Tax Year 2015
For the 2015 tax year, ordinary dividends and qualified dividends reported on Form 1099-DIV must be included as taxable income on the tax return. Dividends may be considered qualified dividend income when paid by domestic corporations or certain qualified foreign corporations and when the taxpayer meets the holding period tied to the security’s ex-dividend date. Ordinary dividend amounts that do not meet these rules are typically taxed at the ordinary income tax rate.
Capital gain distributions, exempt interest dividends, and foreign tax also affect tax liability for this tax year. Foreign tax paid to a foreign corporation may qualify for a credit under a comprehensive income tax treaty, reducing federal income tax. Accurate reporting of dividends received helps prevent tax implications that may require filing an amended return during the tax season.
Step-by-Step (High Level)
Step 1: Receive and Review Form 1099-DIV
The taxpayer should gather all copies of Form 1099-DIV received from financial institutions, mutual fund companies, or credit unions. They should verify the accuracy of the payer information, the taxpayer’s Social Security number, and all dividend amounts reported. They should compare dividends reported with their taxable brokerage account statements.
Step 2: Identify Dividend Categories
The taxpayer should determine how each dividend category is treated on the tax return.
- Ordinary dividends are reported as ordinary income on the taxpayer’s tax return.
- Qualified dividends may be subject to a lower tax rate if they meet the eligibility requirements.
- Capital gain distributions may be taxed at long-term capital gains rates depending on the taxpayer’s situation.
- Foreign tax paid may qualify for either a foreign tax credit or a deduction.
- Exempt interest dividends may apply to specific state tax rules based on the taxpayer’s residency and filing requirements.
Step 3: Report the Amounts on the Tax Return
The taxpayer must enter total dividends, total ordinary dividends, and qualified dividends on the correct lines of Form 1040. Ordinary dividend reported amounts should match Box 1a, while qualified dividends reported should match Box 1b. Capital gains must be included whether or not the taxpayer sold shares during the year.
Step 4: Address Foreign Tax and Special Items
The taxpayer should evaluate whether foreign tax allows for a credit and whether dividends are considered qualified based on the holding period and corporation type. The taxpayer should also review payments from foreign corporations to determine if they are eligible under special tax rules.
Step 5: File the Tax Return or Amended Return
After reporting all dividends received, the taxpayer may file their tax return. If errors are found or corrected forms arrive later, the taxpayer must file an amended return. This ensures the Internal Revenue Service receives accurate information, reducing the chance of issues arising during tax season.
Common Mistakes and How to Avoid Them
- Overlooking small dividend amounts under $10: Report all dividends as taxable income, even if no Form 1099-DIV is issued, to avoid IRS matching notices and penalties.
- Adding ordinary and qualified dividends together: Report Box 1a as total ordinary dividends and treat Box 1b as the qualified portion included in Box 1a to prevent overstated income.
- Ignoring capital gain distributions in Box 2a: Report capital gain distributions on the return and apply the correct capital gains treatment rather than ordinary income rates.
- Failing to claim the foreign tax credit from Box 7: Review foreign tax paid and claim it as a credit or deduction when eligible to reduce overall federal tax liability.
- Not reconciling dividend totals with brokerage records: Compare Form 1099-DIV amounts to year-end account statements to ensure all dividend and distribution entries are complete and consistent.
Carefully reviewing all Forms 1099-DIV, confirming totals, and consulting a qualified tax professional ensures accurate reporting and compliance with IRS requirements.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After the taxpayer files a tax return, financial institutions and other financial institutions send Form 1099-DIV details to the Internal Revenue Service, which compares dividends reported with dividends received. Any differences in dividend income, qualified dividends, capital gain distributions, or foreign tax may affect federal income tax, state taxes, or a potential tax refund. Accurate reporting of ordinary dividends, taxable dividends, and total ordinary dividends helps reduce tax implications and prevent issues that may require an amended return. Keeping the tax form for future tax years supports proper reporting of dividend payments, capital gains, and other taxable income during the next tax season.
FAQs
Why did I receive Form 1099-DIV?
A taxpayer receives Form 1099-DIV because dividends and distributions were paid during the 2015 tax year. The form reports ordinary dividends, qualified dividends, capital gain distributions, and other amounts that must be included on the tax return.
Are reinvested dividends taxable?
Reinvested dividends are taxable because they are considered dividends received, even when used to purchase additional shares of the same company. These dividends must be reported as taxable income for the tax year in which they are received.
What should I do if I receive a corrected Form 1099-DIV?
If a corrected form is received, the taxpayer must use the corrected amounts when filing the tax return. If the return has already been filed, an amended return may be required.
Why is foreign tax listed on my Form 1099-DIV?
Foreign tax appears when a foreign corporation or foreign companies pay dividends. The taxpayer may be eligible for a foreign tax credit, depending on treaty rules and other requirements.
Do qualified dividends always receive a lower tax rate?
Qualified dividends may qualify for a reduced rate when the holding period and eligibility conditions are met. Only qualified dividends are eligible for the lower rate, while nonqualified dividends are taxed as ordinary income.
