The IRS says that all dividends are supposed to be reported on line 9a and on Schedule B, even if no 1099-DIV was received.
It also says to report them on line 9b only if a 1099-DIV says that they are qualified.
This would mean that qualified dividends for which no 1099-DIV was received are taxed at ordinary income tax rates, not at the lower rate that applies to qualified dividends for which a 1099-DIV is received.
If someone is in the 10% or 15% bracket, and therefore pays no tax on dividends reported on line 9b, then they can either a) not report the dividend, probably not get caught (becuase there is no 1099-DIV) and correctly pay no tax, b) report the dividend as the instructions indicate, and pay tax that they should not need to pay, c) report the dividend on line 9b, and probably be audited for claiming something on 9b that was not reported on a 1099-DIV. So if they do not want to pay tax on money that should be tax free, then they can either (a) obey the law by reporting the dividend as a qualified dividend, which is true, and be audited, or (b) violate the law by not reporting the income, and not be audited. What should they do?
If someone in in the 25% bracket or higher, and therefore pays 15% tax on dividends reported on line 9b, then they can either a) not report the dividend, probably not get caught (becuase there is no 1099-DIV) and pay no tax, even though they should pay 15% b) report the dividend as the instructions indicate, and pay tax at ordinary income tax rates, when they should need to pay only 15%, or c) report the dividend on line 9b, and probably be audited for claiming something on 9b that was not reported on a 1099-DIV. How do they pay 15%, and only 15%, without being audited?
"The mutual fund company already said that there will be no 1099 because less than $10 in dividnends was paid. – stephenweinstein 16 hours ago"
Well - then I guess the mutual fund really does not care that the investor has a tax issue and probably is not interested in the investor as a shareholder in the mutual fund.
But the IRS says a lot of things and some of what is says is true - for example, in the instructions for line 9a Form 1040, the IRS says "Each payer should send you a Form 1099-DIV".
The section on the same page regarding qualified dividends says "See Pub. 550 for the definition of qualified dividends if you received dividends not reported on Form 1099-DIV."
I did not see any statement in either the Form 1040 instructions or publication 550 that only qualified dividends reported on a Form 1099 may be entered on line 9b - The stuff I read implied that the taxpayer could report qualified dividends even if there was no Form 1099-DIV from the issuer because the dividends paid were less than $10.
Furthermore, if you look at the year end distribution information for the fund - often on-line, more often in the year end literature, it, at least for some funds, gives the split for non-qualifying/qualifying dividends on a per share or percentage basis. If you know the total dividends per share and the total dividends the taxpayer received, you should be able to use the per share breakdown to back into the "number of shares" for the taxpayer, and from there, the amount of qualified dividends. If the taxpayer does not want to pay you to do the research, the taxpayer can do the research or decide that the tax savings is not worth the effort. Note that it is not just "qualified" dividends that may be an issue, but capital gains distributions and non-taxable distributions.
answered 13 Feb '10, 21:29
If they did not receive a 1099-DIV because the dividends were less than $10, then the difference in the regular tax rate vs the qualified tax rate is no more than $1 for someone in the 25% bracket or lower. Is that worth stressing over? If you have good reason to believe it is qualified, then report it as such.
If the dividends were MORE than $10, then I would insist on a 1099-DIV. If one is not forthcoming, I would not treat the dividends as qualified.
answered 14 Feb '10, 19:16
OR they can contact the brokerage house and ask where their 1099-DIV is. Keep in mind that the IRS has granted brokerages until February 15, 2010 to issue the 1099-DIVs - today is just 02/12 so its possible that the 1099 won't be issued for three more days, then you have allow time for mailing AND we've had some of the worst winter weather in the East in over 100 years. It may be too early yet to know whether a 1099 is coming or not.
Whether dividends are qualified or not is not something the average person can tell on their own. And whether dividends from a mutual fund are qualified are something that I'm not sure anyone but the fund manager is able to determine - I THINK that the its the holdings inside the mutual fund and how long there were held that determines whether they are qualified or not and not simply how long one has held the mutual fund itself as an investment.
answered 12 Feb '10, 22:36