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The Curious Bag
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Dividend payments are a method that companies use to share profits with stockholders and reward investment. However, taxpayers should be aware that this is a form of income and may be taxed by the Internal Revenue Service (IRS) under the dividend tax.
Identification
The dividend tax is money that you owe the federal government based on property that a corporation has awarded you because you own shares of stock in the company.
Reporting
Taxpayers receive Form 1099-DIV from each company that pays them dividends of $10 or more during the calendar year. The information from the form is used to calculate the amount of dividend tax owed.
Rate
Qualified dividends are taxed based on a taxpayer's income tax bracket. As of 2009, the cutoff was the 25 percent tax rate. A higher tax rate meant that a 15 percent dividend tax had to be paid; a lower tax rate meant that dividends were not taxed.
Qualification
IRS Publication 550 explains which payments are considered qualified dividends subject to the dividend tax. Payments other than these are considered ordinary income.
Oversight
The dividend tax is overseen and enforced by the IRS. It is legally entitled to collect penalties and interest on dividend taxes that aren't reported, or aren't reported correctly.
Source:
Internal Revenue Service: Dividends
Internal Revenue Service: Investment Income and Expenses
Resource:
Internal Revenue Service: Form 1099-DIV
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