Dividends & Distributions

Summary

A U.S. expat needs a 1099-DIV because it reports the dividend income earned from U.S. and foreign investments, and helps ensure proper tax reporting on their U.S. tax return. It also provides the necessary information to claim foreign tax credits if foreign taxes were paid on those dividends. Without this form, the IRS may not have accurate records of your dividend income, which could result in underreporting or tax penalties.

Description

A 1099-DIV is a tax form that U.S. taxpayers, including expats, receive from financial institutions or corporations to report dividends and distributions earned from investments. If you're a U.S. expat who holds investments such as stocks, mutual funds, or other income-generating securities, you may receive a 1099-DIV form to report any dividends you have earned during the year.

Here’s why a U.S. expat would need a 1099-DIV:

1. Reporting Dividends to the IRS

The 1099-DIV form is required for reporting dividends and other distributions from investments. It lists:
- Ordinary dividends: The total amount of dividends paid to you.
- Qualified dividends: Dividends that are eligible for lower tax rates due to U.S. tax rules.
- Non-taxable distributions: For example, returns of capital.
As a U.S. taxpayer (including an expat), you must report these dividends on your U.S. tax return, typically on Form 1040.

2. U.S. Taxable Income from Foreign Investments

If you hold foreign investments, such as foreign stocks or mutual funds, and receive dividends from them, you may still receive a 1099-DIV form if the investment is linked to a U.S. brokerage or financial institution.
The U.S. taxes worldwide income, meaning that income from foreign dividends is taxable, and you must report these earnings to the IRS.

3. Foreign Tax Credit

If you pay taxes to a foreign government on the dividends (for example, foreign withholding taxes), the 1099-DIV will show the amount of tax paid, which you can potentially claim as a Foreign Tax Credit (FTC).
This helps prevent double taxation, as you can reduce your U.S. tax liability by the amount of foreign taxes paid on these dividends.

4. Qualified vs. Ordinary Dividends

The 1099-DIV will distinguish between qualified dividends and ordinary dividends:
- Qualified dividends are subject to lower tax rates (0%, 15%, or 20% depending on income level).
- Ordinary dividends are taxed at your ordinary income tax rate.
Understanding which type of dividends you’ve received can help you accurately report and potentially lower your tax liability.

5. Reporting Capital Gains Distributions

A 1099-DIV form may also report capital gains distributions from mutual funds or real estate investment trusts (REITs). These distributions are typically taxed as long-term capital gains.
If you’re a U.S. expat, these gains need to be reported as part of your worldwide income.

6. Tracking and Compliance

The 1099-DIV helps you track all dividend income, ensuring that you report it accurately on your U.S. tax return and avoid penalties for underreporting income.
If you receive dividends from U.S. or foreign sources, it’s important to keep track of them to meet your filing obligations.

7. Avoiding Double Taxation

If foreign dividends are taxed in the foreign country where the income is earned, the 1099-DIV allows you to claim a Foreign Tax Credit for taxes paid to that country. This ensures you don’t pay U.S. taxes on the same income twice.