Credit: Qualified dividends are taxed at the same rate as long-term capital gains, which is 15% for most of us, 0% for those in the 15% tax bracket or a lesser one, and 20% or 23.8% for high earners. Non-qualified ordinary dividends -- you can arrive at those by subtracting the sum in box 1b from the sum in box 1a -- are taxed at your ordinary income tax rate, which is 25% for many of us and can approach 40% for high earners.
Qualified dividends are taxed at the same rate as long-term capital gains, which is 15% for most of us, 0% for those in the 15% tax bracket or a lesser one, and 20% or 23.8% for high earners. Non-qualified ordinary dividends -- you can arrive at those by subtracting the sum in box 1b from the sum in box 1a -- are taxed at your ordinary income tax rate, which is 25% for many of us and can approach 40% for high earners.
What makes a dividend qualified? Well, it will have been paid to you by an American corporation or a corporation that's either based in a country that has a tax treaty with the U.S. or has its shares trading on a U.S. stock exchange. There are also a few other requirements -- namely, you must have owned the stock for more than 60 days.
In box 2a, you'll see any capital gain distribution you received, typically from a mutual fund. This is treated as a long-term capital gain, and it's taxed accordingly. That's beneficial, because short-term capital gains are taxed at your ordinary income tax rate. Other boxes detail any federal income tax withheld, foreign taxes paid, and/or foreign-source income.
Note that you won't get 1099 DIV forms for your tax-advantaged retirement accounts such as IRAs, because those accounts don't generate tax reporting. You aren't taxed on dividends and capital gains you receive each year on holdings in such accounts.
Schedule B
Though you don't have to file the 1099 DIV form with the IRS, the 1099 DIV form(s) you receive may require you to prepare and file a Schedule B with your return. That's the case if all your ordinary dividends listed in all the 1a boxes on your 1099 DIV form(s) total more than $1,500 -- or if you have more than $1,500 in interest income. This shouldn't be a big problem, though, as Schedule B mainly just wants you to list the ordinary dividends and/or interest you received from various payers.
Form 1099 DIV is one of the simpler tax forms taxpayers have to deal with, but you nevertheless need to have a solid understanding of its role in your finances.
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The article The 1099 DIV: A Critical Tax Form for Investors originally appeared on Fool.com.
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