General Question

Nullo's avatar

Are re-invested stock dividends tax-exempt?

Asked by Nullo (21833 points ) February 15th, 2012

I own about three shares of Wal-Mart stock ($5 of each paycheck goes towards purchasing more, so exact numbers are difficult). Each stock pays dividends, which are automatically re-invested.

So I sit here filling out my 1099, and I’m wondering: do I declare the dividends? Or are they not part of the equation, since I’ve ploughed them right back in?

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7 Answers

elbanditoroso's avatar

no. You should have gotten a 1099 from WalMart (or the broker) and the dividends will show up as taxable income.

tedd's avatar

You declare dividends if you have over $10 worth in the year. As @elbanditoroso , if you are required to claim them your broker will send you a 1099, which you should have received by today actually.

Nullo's avatar

I only ever got a w-2, which has no mention of stocks, dividends, or any of the rest. I don’t recall the payout being anything spectacular; it may be that the dividends aren’t large enough.

DrBill's avatar

If you get a 1099, you claim it
If you do not, then you did not earn enough to have to report

If this is a normal stock purchase, the dividends are taxable as they are earned, if it is structured as a retirement, it will be taxed as it is withdrawn for use.

gailcalled's avatar

If I did the math right, you received a total yearly dividend on your three shares of $4.1925.

You’re permitted to round off so it’s $4 of dividend income. Chicken feed, unless you have other dividend income.

WestRiverrat's avatar

If the stocks are part of an IRA or 401(k) you don’t have to pay anything until you start drawing on the funds. You should have gotten a 1099 for the dividends, you may want to ask at HR assuming you are working at walmart.

CWOTUS's avatar

GQ, @Nullo.

The short answer is “yes”, you do have to declare as income dividends received in a non-tax-deferred account even when those dividends are immediately reinvested in the stock that produces them.

Here’s my source for that information.

4)Do I have to pay tax on reinvested dividends?

Dividend reinvestment plans let you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan and use your dividends to buy more stock at a price equal to its fair market value, you must report the dividends as income. If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as income the fair market value of the additional stock on the dividend payment date. Other rules may apply. For additional information, refer to Chapter 9 of Publication 17, Your Federal Income Tax, and Tax Topic 404, Dividends.

If your ownership is in a tax-deferred account such as a 401(k) or IRA, then no dividends need to be declared when the income (or reinvestment) occurs within the tax-deferred account. I know that much because of my own experience of owning an IRA and reinvesting dividends since IRAs were first introduced.

But my question for you (after a final review of your question) is: Why are you filling out a 1099? The form 1099 is issued to you as an income recipient in order to provide supporting documentation for your own tax return. Unless you’re the one paying the dividend, you should not be “filling out” a 1099.

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