How to Report Earned Dividends on Your Taxes
Learn the tax implications of your dividend earnings. This guide clarifies how to interpret tax forms and report your income correctly to ensure accurate filing.
Receiving a dividend is a direct distribution of a company’s earnings to you as a shareholder. This is a common way for corporations to share profits with investors, providing a return separate from any appreciation in the stock’s price. This income is subject to taxation and must be reported to the IRS, with the tax treatment depending on the dividend’s nature and your stock holding period.
Dividend Classifications and Tax Treatment
The tax implications of dividend income depend on its classification as either ordinary or qualified. Ordinary dividends are taxed at your regular income tax rates, the same as your wages. This category includes payments from entities like real estate investment trusts (REITs), money market accounts, and special one-time dividends.
For a dividend to receive more favorable tax treatment, it must be “qualified.” Qualified dividends are taxed at lower long-term capital gains rates. For the 2025 tax year, the rate is 0% for taxpayers with taxable income up to $48,350 if single, $64,750 if head of household, and $96,700 if married filing jointly. The rate is 15% for most filers with income above these thresholds, while the highest earners pay 20%. These income thresholds are indexed for inflation.
To be considered qualified, a dividend must be paid by a U.S. corporation or a qualifying foreign corporation and meet a holding period requirement. 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. The ex-dividend date is the deadline to own a stock to receive its declared dividend. Certain payments, like capital gains distributions from mutual funds, are not considered qualified dividends.
Understanding Your Form 1099-DIV
After the tax year, your brokerage firm will send you Form 1099-DIV, “Dividends and Distributions,” if you were paid more than $10 in dividends from a single source. This form, usually mailed by the end of January, summarizes your dividend income and is also sent to the IRS.
Two boxes on the form are important for reporting your income. Box 1a shows the total amount of all ordinary dividends you received from that payer. This figure represents the gross distribution before any portion is identified as qualified.
Box 1b reports the portion of the amount in Box 1a that is eligible for the lower capital gains tax rates. The amount in Box 1b is a subset of Box 1a, not an additional sum. For example, if Box 1a shows $1,000 and Box 1b shows $800, it means $800 of your total dividends are qualified, and the remaining $200 will be taxed as ordinary income.
How to Report Dividend Income
The information from Form 1099-DIV is transferred directly to your Form 1040, the U.S. Individual Income Tax Return. The total amount of your ordinary dividends from Box 1a is reported on Line 3b of Form 1040. The qualified dividend amount from Box 1b is reported on Line 3a of Form 1040.
Placing the qualified amount on this line signals to the IRS that this portion of your income should be taxed at the preferential capital gains rates. If your total ordinary dividend income from all sources exceeds $1,500, you must also complete and attach Schedule B, “Interest and Ordinary Dividends,” to your tax return.
Dividend Reinvestment Plans (DRIPs)
Many investors use Dividend Reinvestment Plans (DRIPs) to automatically purchase additional shares of stock with their cash dividends. Even though you do not receive the cash directly, the value of the reinvested dividend is still considered taxable income for the year in which it is paid. The IRS views this as if you received the cash and then chose to make a new investment.
These reinvested amounts are included on your Form 1099-DIV and must be reported on your tax return. A consequence of a DRIP is the need to track the cost basis of the shares you acquire. Each reinvestment is a new stock purchase, and maintaining detailed records is necessary for calculating capital gains or losses when you eventually sell the shares. The responsibility for tracking cost basis lies with the taxpayer.