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.
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Other sections concerning mutual fund distributions: Dividend Distributions, Capital Gain Distributions, Miscellaneous Distributions