How to Report Dividend Income on Your Tax Return

When you own stock or mutual funds, you may receive income as dividends, which are a distribution of a company’s earnings to its shareholders. All dividend income is taxable, but the rate depends on its classification. Understanding the types of dividends and the required tax forms is necessary for reporting this income correctly.

Understanding Dividend Classifications and Tax Rates

How a dividend is taxed depends on whether it is qualified or ordinary. Qualified dividends are taxed at more favorable long-term capital gains rates. For a dividend to be qualified, you must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date, which is the cutoff for receiving a payment. Any dividend that does not meet this holding requirement is an ordinary dividend, which is taxed at your regular income tax rate.

For the 2024 tax year, the tax rates on qualified dividends are 0%, 15%, or 20%. The rate you pay is determined by your taxable income and filing status. For single filers in 2024, the 0% rate applies to taxable income up to $47,025. The 15% rate applies to income between $47,026 and $518,900, and the 20% rate applies to income above that threshold. For those married filing jointly, the 0% rate applies to income up to $94,050, the 15% rate to income between $94,051 and $583,750, and the 20% rate to income above that amount.

Required Tax Documentation for Dividends

Each year, you should receive a Form 1099-DIV, Dividends and Distributions, from each financial institution that paid you dividends. This form is sent to both you and the IRS and details the dividend income you received during the previous calendar year. Payers are required to issue this form if they paid you at least $10 in dividends, and you can expect to receive it by early February.

Box 1a on Form 1099-DIV shows your total ordinary dividends, which is the sum of all dividend payments. Box 1b is a subset of Box 1a and reports the portion of your dividends that are qualified and eligible for lower tax rates. Some payments, like dividends on credit union share accounts, may be reported here but are actually treated as interest income.

Other boxes detail different distributions. Box 2a shows total capital gain distributions from mutual funds or REITs. Box 3 lists nondividend distributions, which are a return of your investment and reduce your cost basis in the stock. Box 7 reports foreign tax paid on dividends, which may allow for a tax credit or deduction.

Even if you do not receive a Form 1099-DIV because your dividend income from a single payer was less than $10, you are still required to report all dividend income. It is your responsibility to keep records of all income received. You must aggregate all dividend income from all sources to report the correct total on your return.

How to Report Dividends on Your Tax Return

The first step in reporting dividend income is determining if you must file Schedule B, Interest and Ordinary Dividends. You are required to file Schedule B if your total ordinary dividend income from all sources exceeds $1,500 for the tax year. You also must file Schedule B if you received dividends as a nominee, meaning the Form 1099-DIV you received includes dividends belonging to someone else.

If you file Schedule B, you must list each individual payer of dividend income and the amount received from each in Part II of the form. After listing all payers, you will total the amounts, and this total is then carried over to line 3b of your Form 1040.

If your total ordinary dividends are $1,500 or less and no other Schedule B requirements apply, you can report the income directly on Form 1040. In this case, the total of your ordinary dividends from Box 1a of all your Forms 1099-DIV is entered on line 3b.

For qualified dividends, the process is the same whether or not you file Schedule B. You will take the total qualified dividend amount from Box 1b of your forms and enter it on line 3a of Form 1040. The tax is calculated using the “Qualified Dividends and Capital Gain Tax Worksheet” to apply the lower rates.

Reporting Special Dividend Situations

Many investors participate in dividend reinvestment plans (DRIPs), where cash dividends automatically purchase additional shares. These reinvested dividends are taxable in the year they are paid, even though you did not receive the cash directly. The amount of the reinvested dividend will be included on your Form 1099-DIV and must be reported as income. You should also add this amount to your cost basis in the investment to reduce potential capital gains tax when you eventually sell the shares.

Your Form 1099-DIV may show capital gain distributions in Box 2a, which is common for mutual fund investors. These distributions represent the fund’s net gains from selling securities and are treated as long-term capital gains, regardless of how long you have owned the fund. This income is reported on Schedule D, Capital Gains and Losses, not on Schedule B.

If you receive a Form 1099-DIV with dividends that belong to someone else, you are a “nominee.” This occurs if you hold securities for another person, like a child. You must file a separate Form 1099-DIV with the IRS and provide a copy to the actual owner. You then subtract this nominee distribution amount on your Schedule B so you only pay tax on your own income.