Many companies pay cash dividends to shareholders with the aim of retaining them as investors. Like any other income, cash dividends are taxable and must be reported when you file an income-tax return. In fact, even very small dividend payments must be reported to the Internal Revenue Service.
Tax Treatment of Dividends
Cash dividends paid to shareholders are taxed as ordinary income. Dividends must be reported on tax returns and taxes must be paid on dividends in the tax year in which the dividends are received.
Form 1099-DIV
Brokerage firms will send out Form 1099-DIV to individuals after the end of the tax year. This form includes all dividends paid during the tax year that were $10 or more.
Schedule K-1
Dividends paid to a partnership, trust or S corporation will be included on a Schedule K-1. Like a 1099-DIV for individuals, Schedule K-1 will include dividends paid to the entity over $10.
Dividends Under $10
Although dividends less than $10 are not included on Form 1099-DIV, individuals are still required to report and pay taxes on these small dividends. All dividends, including dividends less than $10, must be reported when filing federal taxes.
State Taxes
Every state has its own taxing authority and regulations. You should check with your state's tax code to determine if you must report dividends received that are under $10.