Ordinary Dividends
An ordinary dividend is a
distribution by a mutual
fund out of its earnings and
profits. Include ordinary
dividends that you receive
from a mutual fund as
dividend income on your
individual income tax
return.
Ordinary dividends are the
most common type of
dividends. They will be
reported in box 1a of Form
1099-DIV or on a similar
statement you receive from
the mutual fund.
Qualified dividends -
Many ordinary dividends you
received are also classified
as qualified dividends. The
amount of your qualified
dividends will be shown in
box 1b of Form 1099-DIV or
on a similar statement you
get from the mutual fund.
Qualified dividends are
taxed at the same maximum
tax rates that apply to a
net capital gain. They are
taxed at 15% if the regular
tax rate that would apply is
25% or higher. They are
taxed at 5% if the regular
tax rate that would apply is
lower than 25%.
To be a qualified dividend
subject to the 5% or 15%
rate, a dividend must meet
all of the following
requirements.
The dividend must have
been paid by a U.S.
corporation or a
qualified foreign
corporation. See chapter
1 of IRS Publication 550
for the definition of a
qualified foreign
corporation.
The dividend must not be
of a type excluded by
law from the definition
of a qualified dividend.
See chapter 1 of
Publication 550 for a
list of these types of
dividends.
You must meet the
holding period
requirement (discussed
next).
Holding period -
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
first date following the
declaration of a
dividend on which the
buyer of a stock will
not receive the next
dividend payment. When
counting the number of
days you held the stock,
include the day you
disposed of the stock,
but not the day you
acquired it.
More information. See
chapter 1 of Publication
550 for more information
about qualified
dividends.
