Investors who own shares of stocks or mutual funds that pay dividends can expect to receive Form 1099-DIV from their brokerage company. Most investors should already have the information in hand by now, although some brokers are slower in getting information to their investors than others.
Form 1099-DIV is reasonably straightforward, but it's still important to know how to take the information it provides and report it correctly on your tax return. Here, we'll give you a box-by-box guide to the 1099-DIV form.
Left-side boxes: Personal information
Along the left side of the form, you'll see information related to the entity that's paying the dividend as well as your own personal data as the receiver of the dividend. Note that if you have a brokerage account, your broker will be the listed as payer, even though you actually received dividend income from one or more stocks or funds that you hold within that account. You'll also see space for an account number as well as check-boxes for those who are subject to the Foreign Account Tax Compliance Act as well as those who've been told that you provided an incorrect tax identification number.
Box 1a: Total ordinary dividends
The first box on the form includes the total of any dividends on stocks you get, as well as distributions of income and net short-term capital gains from mutual funds. Keep in mind that this amount includes all qualified dividends listed in box 1b below.
Box 1b: Qualified dividends
Box 1b shows how much of your dividends will get taxed at the lower tax rate on qualified dividends. This is based on the best information your broker has at the time, but the IRS directs brokers to include dividends for which it's impractical to determine whether you've met the required holding period. If it turns out that you haven't, you'll need to make a manual calculation of your own.
Box 2a: Total capital gains distributions
Long-term capital gains distributions from funds are put in Box 2a. This figure also gets a preferred tax rate, and it includes all the special cases below.
Box 2b: Unrecaptured Section 1250 gain
If you sell real property that has been depreciated, Section 1250 of the Internal Revenue Code requires you to recapture some past depreciation at a special tax rate. Box 2b shows how much of this type of income you have.
Box 2c: Section 1202 gain
Those who invest in qualified small business stock under Section 1202 of the Internal Revenue Code get a preferred tax rate. Box 2c indicates any qualifying Section 1202 gain you have.
Box 2d: Collectibles gain
Taxes on long-term capital gains for collectibles don't qualify for the lowest capital gains tax rates that apply to stocks, funds, and most investment assets. Instead, a maximum rate of 28% applies. If your actual tax rate is lower, then you'll owe tax at the lower rate.
Box 3: Nondividend distributions
Sometimes, companies and mutual funds make payments that are characterized as return of capital. These amounts aren't subject to tax, but they require you to adjust your tax basis so that you report the proper amount of gain later when you sell the investment.
Box 4: Federal income tax withheld
If your broker withheld any federal income tax on your behalf, it'll be indicated here. You'll want to include this amount as a payment when you calculate your refund or tax bill.
Box 5: Investment expenses
Some investments that charge expenses will include them here. Most mutual funds simply deduct expenses from the amounts they pay their investors, reducing what shows up in Box 1a and therefore not appearing as a separate item here.
Boxes 6 and 7: Foreign tax paid and foreign country or U.S. possession
If you own foreign investments on which you had to pay tax to a foreign country or U.S. possession, the amount of tax and the name of the country will be in these boxes. For funds with income and taxes from more than one foreign country, you'll typically see Various indicated. This is useful information for you to use to take the foreign tax credit if you're eligible.
Boxes 8 and 9: Cash and noncash liquidation distributions
If a company or fund liquidates, then you might receive a combination of cash, stock, or other investments. Cash will be included in Box 8, and the value of any other assets you receive will show up in Box 9.
Boxes 10 and 11: Exempt-interest dividends and specified private activity bond interest dividends
Box 10 includes dividends that aren't subject to tax because they represent amounts received in tax-exempt interest. Private activity bonds are special types of bonds that aren't subject to regular income tax but can in some cases be subject to alternative minimum tax, and they're indicated in Box 11.
Boxes 12 through 14: State tax information
You'll find state tax information in Boxes 12 through 14, including any state tax withheld. Not all states follow the federal rules for income tax on dividends, so be ready for any differences.
Make the right report
Be sure that you get all the information that your broker provides on your 1099-DIV included correctly on your tax return. That way, you'll avoid sending up red flags that could cause your return to get audited.