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What are dividends? 1099-DIV

Dividends are shares of a company’s profits that are distributed in the form of cash and/or property to its shareholders. Dividends can be issued as shares of stock, cash, or other property. Each company decides the type, the amount, and when to pay dividends.

Go to this section in Credit Karma Tax: 1099-DIV Income

If you receive dividend income over $10, then you should receive a Form 1099-DIV from each company or entity who paid those dividends. The 1099-DIV you receive should indicate if your dividends are qualified or ordinary dividends.

What is the difference between qualified and ordinary dividends?

Dividends can be classified either as ordinary or qualified.

Ordinary dividends are taxed as ordinary income (not capital gains), meaning you pay the same marginal tax rate that you pay on income like wages, salaries, tips, and commissions.

Qualified dividends are taxed at the capital gains tax rate of 0%, 15%, or 20%, depending on the taxpayer’s tax rate.

In order for your dividends to qualify:

  • The dividends were paid by a US corporation or a qualified foreign corporation.
  • The stock must have been held for more than 60 days in the 121 days prior to the ex-dividend date.
  • The dividends are not any of the types of non-qualified dividends listed below:
    • Capital gain distributions.
    • Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U.S. building and loan associations, U.S. savings and loan associations, federal savings and loan associations, and similar financial institutions. (Report these amounts as interest income.)
    • Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year.
    • Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation.
    • Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property.
    • Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends.
    • Payments shown on Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends.
      Source: irs.gov

Foreign tax paid on 1099-DIV

If your 1099-DIV indicates foreign tax paid in box 7 and the corresponding country field shows blank or various, you can select Other country not listed as the Foreign country or U.S. possession on Credit Karma Tax when filing your federal return.

Credit Karma Tax supports the Foreign Tax Credit up to $300 for single-person filings, or $600 for married filing jointly, as long as you qualify to claim the Foreign Tax credit without filing Form 1116.

Credit Karma Tax does not currently support Form 1116 or Form 2555. If you need to file either of these forms with your federal return you will not be able to file with Credit Karma Tax.

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