What Form to Use to File a Stock Dividend Tax

by Matt Petryni

Stock dividends are a common source of income for private investors. Like most other sources of income, the recipient of a dividend is required to report this income to the Internal Revenue Service and pay income tax. Knowing what form to use to file a stock dividend tax is usually helpful for individual shareholders when preparing returns at tax time.

Understanding Dividends

According to the IRS, "dividends are distributions of property ... a corporation pays you because you own stock in that corporation." Many publicly traded companies pay out dividends to their shareholders at regular intervals, though dividends may come from privately traded partnerships or corporations as well. No matter the source, dividends are taxable as regular income and are taxed at the normal rate. In some exceptional cases, dividends are taxed as capital gains.

Ordinary Dividends

Most dividends paid by a corporation or a private partnership are called ordinary dividends, and they are reported to the shareholder and the IRS by the corporation on form 1099-DIV. The shareholder is required to disclose these dividends as taxable income when preparing his tax return, IRS form 1040 or 1040-A. According to the IRS, businesses do not use form 1099-DIV for dividends that are part of an employee stock ownership plan or payments in lieu of dividends. These income sources are reported on forms 1099-R and 1099-MISC, respectively. In addition, dividend payments to health savings accounts, IRAs or tax-exempt corporations are not reported as taxable income, according to the IRS instructions for form 1099-DIV.

Qualified Dividends

While most dividends are taxed at the normal income tax rate, some dividends called qualified tax dividends are only subject to the capital gains tax -- as of 2010, a maximum rate of 15 percent. Taxpayers who held a dividend-paying stock for less than 60 days are likely to be taxed at this rate. The IRS guidance in this area is actually more specific: To qualify, dividends must be paid on a stock that is held for no more than 60 days during a specified 121-day period. This 121-day period begins 60 days before the date when buyers of the stock are no longer entitled to the next dividend payment. This date is called the ex-dividend date. Qualified dividends are reported in box 1b of form 1099-DIV, as of 2011.

Interest Dividends

Some dividends are not reported on the form 1099-DIV because they are actually interest according to the tax code. These dividend payments include income from cooperatives, credit unions or savings and loan associations. Many of these organizations sometimes refer to payments to their members as "dividends," but this income is reported to the IRS on form 1099-INT, Interest Income. Interest payments, whether called a dividend or not, are always taxed at the normal income tax rate and will not qualify for the capital gains tax rate.

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