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How Are Dividends and Other Corporate Distributions Taxed? 
 
by kmhagen July 07, 2005

If you have investments in stocks or mutual funds, you may receive ordinary dividends, qualified dividends, capital gain distributions, stock dividends, or distributions that are a return of capital. Each may have a different tax treatment.

The most common types of corporate distributions are ordinary dividends, capital gain distributions, and non-dividend distributions.  You will normally receive Form 1099-DIV if you received dividends or other distributions of $10 or more, but you may also receive distributions through partnerships or subchapter S corporations.  These would be reported on Schedule K-1 (Form 1065 for a partnership and Form 1120S for a subchapter S corporation).

Dividends

Dividends are distributions of corporate earnings, and can be paid on both common and preferred stock.  There are two types of dividends - ordinary dividends and qualified dividends.  Ordinary dividends are taxed as ordinary income at the normal personal income tax rates in effect.  Qualified dividends are ordinary dividends that meet certain requirements and receive special tax treatment, effectively being taxed at the same rates as capital gains.

Ordinary Dividends

Ordinary dividends are the most common type of corporate distributions.  They are normally reported in box 1a of Form 1099-DIV, and must be included on either Form 1040A or 1040.  If the total amount of dividends you received during the year is more than $1,500 and you are filing Form 1040A, the dividends must be reported on Schedule I, Part II.  If you are filing Form 1040, the dividends would be reported in Part II of Schedule B.

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