Dividends paid to you out of a corporation’s earnings and profits are taxable as ordinary income. The corporation will report dividends on Form 1099-DIV (or equivalent statement). Mutual-fund dividends and distributions are also reported on Form 1099-DIV (or similar form). Corporate dividends and mutual-fund distributions of $10 or more are reported on Form 1099-DIV (or equivalent) whether you receive them in cash or they have been reinvested at your request.
Form 1099-DIV for 2015 gives you a breakdown of the dividends and distributions paid to you during the year. You do not have to attach the Form 1099-DIV (or similar statement) to your tax return.
Ordinary dividends taxed to you are shown in Box 1. These are the most common type of distribution, payable out of a corporation’s earnings and profits. Your share of a mutual fund’s ordinary dividends is also shown on Form 1099-DIV; short-term capital gain distributions are included in the Box 1a total.
Part of the Box 1a amount may be qualified dividends. Qualified dividends reported in Box 1b are generally taxed at the same favorable rates (zero, 15% or 20%) as net capital gains.
Capital gain distributions (long term) from a mutual fund are shown in Box 2a. Box 2b shows the portion of the Box 2a amount, if any, that is unrecaptured Section 1250 gain from the sale of depreciable real estate. Box 2c shows the part of Box 2a that is Section 1202 gain from small business stock eligible for a 50% exclusion, or a 60% exclusion in the case of qualified empowerment zone business stock. Box 2d shows the amount from Box 2a that is 28% rate gain from the sale of collectibles. If any amount is reported in Box 2b, 2c, or 2d, you must file Schedule D with Form 1040 .
Nontaxable distributions that are a return of your investment are shown in Box 3.
If you did not give your taxpayer identification number to the payer, backup withholding at a 28% rate is shown in Box 4.
Your share of expenses from a non– publicly offered mutual fund is shown in Box 5 and may be deductible as a miscellaneous itemized deduction subject to the 2% floor. This amount is included in Box 1a.
The foreign tax shown in Box 6 (imposed by the country shown in Box 7) may be claimed as a tax credit on Form 1116 or as an itemized deduction on Schedule A.
Cash and non-cash liquidation distributions are shown in these boxes are shown in Boxes 8 and 9.
A distribution that is not paid out of earnings is a nontaxable return of capital, that is, a partial payback of your investment. The company will report the distribution in Box 3 of Form 1099-DIV as a nontaxable distribution. You must reduce the cost basis of your stock by the nontaxable distribution. If your basis is reduced to zero by a return of capital distributions, any further distributions are taxable as capital gains, which you report on Schedule D of Form 1040.