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Taxmap/pub17/p17-038.htm#TXMP0474897c Chapter 9 Dividends and Other Corporate Distributions

Dividends and Other Corporate Distributions

Taxmap/pub17/p17-038.htm#TXMP27b04d66 Reminder

Taxmap/pub17/p17-038.htm#TXMP426f353e
Foreign income.

If you are a U.S. citizen with dividend income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer.

Introduction

This chapter discusses the tax treatment of:

• Ordinary dividends,
• Capital gain distributions,
• Nondividend distributions, and
• Other distributions you may receive from a corporation or a mutual fund.

This chapter also explains how to report dividend income on your tax return.

Dividends are distributions of money, stock, or other property paid to you by a corporation. You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. However, some amounts you receive that are called dividends are actually interest income. (See Dividends that are actually interest under Taxable Interest in chapter 8.)

Most distributions are paid in cash (or check). However, distributions can consist of more stock, stock rights, other property, or services.

Useful items

You may want to see:

Taxmap/pub17/p17-038.htm#TXMP3648868d General Information

This section discusses general rules for dividend income.

Taxmap/pub17/p17-038.htm#TXMP258ac6de Tax on investment income of a child under age 14.

Tax on investment income of a child under age 14

Part of a child's 2004 investment income may be taxed at the parent's tax rate. This may happen if all of the following are true.

 

1. The child was under age 14 at the end of 2004. A child born on January 1, 1991, is considered to be age 14 at the end of 2004.
2. The child had more than $1,600 of investment income (such as taxable interest and dividends) and has to file a tax return.
3. At least one of the child's parents was alive at the end of 2004.

If all of these statements are true, Form 8615, Tax for Children Under Age 14 With Investment Income of More Than $1,600, must be completed and attached to the child's tax return. If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate.

However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.

For more information about the tax on investment income of children and the parents' election, see chapter 33.

Taxmap/pub17/p17-038.htm#TXMP582977d9 Beneficiary of an estate or trust.

Beneficiary of an estate or trust.

Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc., from the fiduciary. Your copy of Schedule K-1 and its instructions will tell you where to report the income on your Form 1040.

Taxmap/pub17/p17-038.htm#TXMP48256077 Social security number (SSN).

SSN

You must give your name and SSN (or individual taxpayer identification number (ITIN)) to any person required by federal tax law to make a return, statement, or other document that relates to you. This includes payers of dividends. If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty.

For more information on SSNs and ITINs, see Social security number (SSN) in chapter 8.

Taxmap/pub17/p17-038.htm#TXMP358dc031 Backup withholding.

Backup Withholding

Your dividend income is generally not subject to regular withholding. However, it may be subject to backup withholding to ensure that income tax is collected on the income. Under backup withholding, the payer of dividends must withhold, as income tax, a percentage of the amount you are paid. For 2005, this percentage is 28%.

Backup withholding may also be required if the Internal Revenue Service (IRS) has determined that you underreported your interest or dividend income. For more information, see Backup Withholding in chapter 5.

Taxmap/pub17/p17-038.htm#TXMP6f26a850 Stock certificate in two or more names.

Stock certificate in two or more names.

If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person may receive a share of any dividends from the stock. Each person's share is determined by local law.

Taxmap/pub17/p17-038.htm#TXMP4358de91 Form 1099-DIV.

F1099DIV

Most corporations use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. Keep this form with your records. You do not have to attach it to your tax return.

Taxmap/pub17/p17-038.htm#TXMP063a2d55 Dividends not reported on Form 1099-DIV.

Even if you do not receive Form 1099-DIV, you must still report all of your taxable dividend income. For example, you may receive distributive shares of dividends from partnerships or subchapter S corporations. These dividends are reported to you on Schedule K-1 (Form 1065) and Schedule K-1 (Form 1120S).

Taxmap/pub17/p17-038.htm#TXMP17cdd4fb Reporting tax withheld.

If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld.

Taxmap/pub17/p17-038.htm#TXMP68df492c Nominees.

If someone receives distributions as a nominee for you, that person will give you a Form 1099-DIV, which will show distributions received on your behalf.

Taxmap/pub17/p17-038.htm#TXMP6bccdb42 Form 1099-MISC.

Form 1099-MISC.

Certain substitute payments in lieu of dividends or tax-exempt interest that are received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments.

Taxmap/pub17/p17-038.htm#TXMP50e8f497 Incorrect amount shown on a Form 1099.

Incorrect amount shown on a Form 1099.

If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. The new Form 1099 you receive will be marked "Corrected."

Taxmap/pub17/p17-038.htm#TXMP64898841 Dividends on stock sold.

Dividends on stock sold.

If stock is sold, exchanged, or otherwise disposed of after a dividend is declared, but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income.

Taxmap/pub17/p17-038.htm#TXMP059456e8 Dividends received in January.

Dividends received in January.

If a regulated investment company (mutual fund) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. You report the dividend in the year it was declared.

Previous Page:  Publication 17 - Your Federal Income Tax - How To Report Interest Income Next Page:  Publication 17 - Your Federal Income Tax - Ordinary Dividends Use     to find additional instances of index items.