Form 1099-DIV: Dividends and Distributions (2016)

What the Form Is For

Form 1099-DIV is a tax document that reports dividends and other distributions you received from investments during the tax year. If you own stocks, mutual funds, or shares in real estate investment trusts (REITs), you'll likely receive this form from your bank, brokerage firm, or investment company.

Think of it as a receipt for your investment income—similar to how your employer sends you a W-2 for wages, your investment company sends you a 1099-DIV for dividends. The form breaks down different types of investment income, including ordinary dividends (the most common type), qualified dividends (which get special tax treatment), and capital gain distributions from mutual funds or REITs.

The issuer must send you Form 1099-DIV if you received at least $10 in dividends or other distributions during the year, or if they withheld any federal income tax or foreign tax from your payments. Even if you automatically reinvested your dividends instead of receiving cash, they're still taxable and must be reported on this form.

IRS Instructions for Form 1099-DIV (2016)

When You’d Use Form 1099-DIV (Including Late/Amended Filings)

Standard Filing Timeline

You should receive Form 1099-DIV from each payer by January 31, 2017 (for the 2016 tax year). You'll use this information when preparing your federal tax return, which for most individuals is due April 15, 2017. The form helps you accurately report your dividend income on Form 1040 or 1040A.

Special January Payment Rule

There's an unusual timing rule you should know about: If a regulated investment company (like a mutual fund) or REIT declares a dividend in October, November, or December 2016 but actually pays it in January 2017, it's still reported on your 2016 Form 1099-DIV. This means you report it on your 2016 tax return even though you received the money in 2017.

Late or Corrected Forms

Sometimes you'll receive a corrected Form 1099-DIV marked "CORRECTED" in the checkbox at the top. This happens when the payer made an error on your original form. If you already filed your tax return using the incorrect information, you'll need to file an amended return (Form 1040X) to correct your reported income. Don't ignore corrected forms—the IRS receives copies too, and mismatches can trigger notices.

Amended Return Situations

You may need to amend your return if you discover you failed to report a 1099-DIV, reported incorrect amounts, or received a corrected form after filing. Generally, you have three years from your original filing deadline to file an amended return.

Key Rules or Details for 2016

The $10 Reporting Threshold

Financial institutions must issue Form 1099-DIV if you received $10 or more in dividends and distributions. However, you're technically required to report all dividend income on your tax return, even amounts below $10.

Ordinary vs. Qualified Dividends

Not all dividends are taxed the same way. Ordinary dividends (shown in Box 1a) are taxed at your regular income tax rate. Qualified dividends (shown in Box 1b) receive preferential treatment and are taxed at lower capital gains rates—0%, 15%, or 20%, depending on your income level. To qualify for the lower rate, you must have held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.

The $1,500 Schedule B Requirement

If your ordinary dividends exceed $1,500 for the year, you must complete Schedule B (Form 1040) listing each payer and the amount received. Below $1,500, you can simply report the total on your Form 1040 or 1040A without additional details.

Foreign Tax Credit

If you received dividends from foreign investments, your payer may have paid foreign taxes on your behalf (shown in Box 6). You can typically claim these as either a deduction or a credit on your tax return, helping you avoid double taxation.

Nominee Situations

If you received dividends in your name that actually belong to someone else (for example, you hold stock jointly with your child), you're considered a "nominee." You must file your own Form 1099-DIV with the IRS to report the other person's share and give them a copy for their tax return. Spouses filing jointly don't need to do this for each other.

IRS About Form 1099-DIV

Step-by-Step (High Level)

For Recipients (Taxpayers)

Step 1: Receive and Review

Wait until you've received all 1099-DIV forms from your investment accounts. Most arrive by the end of January. Check that your name, Social Security number, and amounts look correct. Compare the amounts to your investment account statements.

Step 2: Organize by Type

Look at the different boxes on the form. Box 1a shows total ordinary dividends, Box 1b shows qualified dividends (a subset of Box 1a), Box 2a shows capital gain distributions, and Box 3 shows nondividend distributions (returns of capital). Each type gets reported differently on your tax return.

Step 3: Report on Your Tax Return

Enter ordinary dividends from Box 1a on line 9a of Form 1040 or 1040A. Enter qualified dividends from Box 1b on line 9b. Capital gain distributions from Box 2a generally go on Schedule D (Form 1040), line 13, or directly on Form 1040, line 13, if you don't have other capital gains or losses.

Step 4: Complete Schedule B (If Required)

If your total ordinary dividends exceed $1,500, list each payer and amount on Schedule B. This schedule also asks whether you had any foreign accounts or trusts during the year.

Step 5: Claim Credits or Deductions

If Box 4 shows federal income tax withheld (backup withholding), include that on your return as taxes paid. If Box 6 shows foreign tax paid, consider claiming it as a credit or deduction. If Box 5 shows investment expenses from a nonpublicly offered mutual fund, you may be able to deduct these on Schedule A.

Step 6: Adjust Your Cost Basis

If Box 3 shows nondividend distributions (return of capital), this isn't immediately taxable, but you must reduce your cost basis in the investment. Keep records for when you eventually sell the shares.

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: Forgetting to Report Small Amounts

Many taxpayers assume that if they don't receive a 1099-DIV (because they received less than $10), they don't need to report the income. Wrong. All dividend income is taxable and must be reported, regardless of whether you receive a form. Keep your own records of investment account statements.

Mistake #2: Confusing Ordinary and Qualified Dividends

Box 1a shows total ordinary dividends, and Box 1b shows the portion that's qualified. A common error is reporting the Box 1b amount twice—once as ordinary dividends and again as qualified. Box 1b is already included in Box 1a, so you report the Box 1a amount as ordinary dividends and indicate separately how much of it (Box 1b) qualifies for the lower tax rate.

Mistake #3: Ignoring Nondividend Distributions

Box 3 amounts aren't taxable income right now, but many people forget to adjust their cost basis. If you don't reduce your basis by these return-of-capital amounts, you'll pay too much tax when you eventually sell the investment. Keep detailed records showing your adjusted basis.

Mistake #4: Missing Corrected Forms

Investment companies sometimes issue corrected 1099-DIV forms in March or even later. If you file early and then receive a corrected form, you must file an amended return if the amounts changed. Consider waiting until mid-February to file if you have complex investments.

Mistake #5: Incorrect Social Security Number

If the SSN on the form doesn't match IRS records, the payer may have started backup withholding at 28%. If you see amounts in Box 4 and believe your SSN is correct, contact the payer immediately to correct their records and stop future withholding.

Mistake #6: Not Claiming Foreign Tax Credit

Many taxpayers see the amount in Box 6 (foreign tax paid) and ignore it. This is money you can often claim as a credit against your U.S. taxes, reducing your tax bill dollar-for-dollar. Don't leave this money on the table.

Mistake #7: Throwing Away the Form After Filing

Keep your 1099-DIV forms for at least three years (the IRS audit period), and keep records of basis adjustments indefinitely. You'll need these to calculate capital gains when you sell investments.

What Happens After You File

IRS Matching Process

The IRS receives copies of all 1099-DIV forms issued by payers. After you file your return, the IRS computers match the amounts you reported against the forms they received. This matching typically happens months after you file—sometimes not until the following year.

CP2000 Notices

If the IRS finds a mismatch between what you reported and what your payers reported, you'll receive a CP2000 notice (not technically an audit). The notice proposes changes to your return and calculates additional tax, interest, and possibly penalties. You have the right to respond, explaining the discrepancy or agreeing with the changes. Common reasons for mismatches include forgetting to report a 1099-DIV, transposing numbers, or reporting incorrect amounts.

Backup Withholding

If you're subject to backup withholding (shown in Box 4), it continues until you correct the issue that caused it—usually providing a correct taxpayer identification number or resolving underreported income. The withheld amounts are sent to the IRS as credits toward your tax liability.

State Tax Returns

Most states also require you to report dividend income. Boxes 12-14 on Form 1099-DIV provide space for state tax information. Your payer may send state tax copies to your state tax department, which performs its own matching process.

Record Keeping Impact

The information on your 1099-DIV affects your long-term investment records. Nondividend distributions reduce your cost basis, capital gain distributions may affect your holding period for future sales, and qualified dividend classifications can impact your investment strategy.

FAQs

Q1: Do I have to report dividends if they were automatically reinvested?

Yes, absolutely. Reinvested dividends are still taxable income in the year they're paid. The fact that you chose to use them to buy more shares instead of taking cash doesn't change the tax treatment. Your 1099-DIV will include reinvested dividends in the reported amounts. As a bonus, each reinvestment increases your cost basis in the investment, reducing capital gains when you eventually sell.

Q2: I received a 1099-DIV with my child's name but my Social Security number. What do I do?

This is a nominee situation. The dividends belong to your child, not you. You must file a Form 1099-DIV showing yourself as the payer and your child as the recipient, reporting your child's share. File this with Form 1096 to the IRS and give your child a copy. Then don't include those dividends on your own tax return. Your child reports them on their return (or you report them on your return if you're claiming the child as a dependent and using Form 8814).

Q3: What's the difference between Box 2a capital gain distributions and actual capital gains from selling stock?

Box 2a reports capital gain distributions—gains that a mutual fund or REIT realized inside the fund when it sold securities, then distributed to shareholders. You report these even if you didn't personally sell any shares. When you actually sell your shares, that's a separate capital gain or loss you calculate yourself and report on Schedule D based on your purchase and sale prices.

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

Maybe, but it's complicated. Box 5 shows your share of expenses from a nonpublicly offered mutual fund. These are miscellaneous itemized deductions subject to the 2% of adjusted gross income floor on Schedule A. You can only benefit if you itemize deductions (not take the standard deduction) and your total miscellaneous deductions exceed 2% of your AGI. Many taxpayers find these provide no actual tax benefit. Note: The amount in Box 5 is already included in Box 1a as income.

Q5: I lost the form. How can I get a replacement?

Contact the payer (your brokerage firm, mutual fund company, or bank) directly. Most provide online access where you can download and print replacement forms. If you're preparing your taxes and haven't received a form you're expecting, don't guess at the amounts—get the actual form. The IRS has the information and will catch discrepancies.

Q6: What if I disagree with the amounts on my 1099-DIV?

First, contact the payer to discuss the discrepancy. They may have made an error and will issue a corrected form. If you still disagree after talking with them, you can report what you believe to be the correct amount on your tax return, but you must include an explanation. Attach a statement to your return explaining the difference. Be prepared to defend your position if the IRS questions it. In some cases, you might report the payer's amount and then subtract it on another line with an explanation.

Q7: Are dividend payments from my life insurance policy reported on 1099-DIV?

No. Taxable distributions from life insurance contracts are reported on Form 1099-R, not Form 1099-DIV. Similarly, dividend distributions from retirement accounts (IRAs, 401(k)s, etc.) aren't reported on 1099-DIV because they're inside tax-deferred accounts. You'll only see 1099-DIV forms for investments in regular taxable accounts.

Additional Resources

This summary is based on IRS guidance and regulations in effect for tax year 2016. Tax laws change frequently. For current tax year information or specific situations, consult the latest IRS guidance or a qualified tax professional.

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