Reinvested dividends must be reported on your tax return in the same manner as if you had received them in cash. Here is a detailed explanation of how to report reinvested dividends:
- Ordinary Dividends:
- Reinvested dividends are included in the total amount of ordinary dividends reported in box 1a of Form 1099-DIV. You must report these dividends on line 3b of Form 1040, Form 1040-SR, or Form 1040-NR.
- If the total amount of ordinary dividends (including reinvested dividends) exceeds $1,500, or if you received ordinary dividends as a nominee, you must also complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to your tax return.
- Qualified Dividends:
- If any portion of the reinvested dividends is considered qualified dividends, this amount will be reported in box 1b of Form 1099-DIV. You must report qualified dividends on line 3a of Form 1040, Form 1040-SR, or Form 1040-NR.
- Capital Gain Distributions:
- If the reinvested dividends include capital gain distributions, these will be reported in box 2a of Form 1099-DIV. You should report these distributions on line 7 of Schedule D (Form 1040) or directly on line 13 of Form 1040, depending on your specific situation.
- Record Keeping:
- It is important to keep records of the amount of reinvested dividends, the number of additional shares purchased, and the purchase dates. This information is necessary to establish your basis when you sell the shares.
- Withholding:
- If the dividends are reinvested through a dividend reinvestment plan, any withholding under section 3406 applies at the time the dividends are made available to you or credited to your account. The payor may choose not to apply withholding to any excess of the fair market value of the shares over the purchase price or to any fees paid by the payor.
By following these guidelines, you can ensure that reinvested dividends are accurately reported on your tax return, complying with IRS requirements.
Sources:
Publication 1380
Publication 564
Publication 550 (2023)
Instructions for Form 1099-DIV (01/2022)
§ 31.3406(b)(2)-4. Reportable dividend payment.
