Exempt-Interest Dividend

AAA

DEFINITION of 'Exempt-Interest Dividend'

A distribution from a mutual fund that is not subject to income tax. Exempt-interest dividends are often associated with mutual funds that invest in municipal bonds. While exempt-interest dividends are not subject to federal income tax, they may still be subject to state income tax or the Alternative Minimum Tax (AMT). The dividend income must be reported on the income tax return, and it is reported by mutual funds on Form 1099-INT.

INVESTOPEDIA EXPLAINS 'Exempt-Interest Dividend'

Individuals with high net worths are more likely to use municipal bonds and funds because the tax savings outweigh the lower returns provided by the investments. The tax benefits provided by the investments, including exempt-interest dividends, are lost if the investments are held in an IRA. This is because all dividends and interest within an IRA are considered tax-exempt.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Form 1099-INT

    The form issued by all payers of interest income to investors ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Dividend Tax Credit

    The amount a Canadian resident applies against their tax owing ...
  5. Alternative Minimum Tax - AMT

    A tax calculation that adds certain tax preference items back ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  1. What are the advantages of investing in ETFs with high trading volume?

    The advantages of investing in an exchange-traded fund (ETF) with high trading volume are increased liquidity, great parity ... Read Full Answer >>
  2. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  3. Which REITs pay the highest dividends?

    A real estate investment trust (REIT) is a financial security that trades like a stock on major market exchanges. However, ... Read Full Answer >>
  4. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  5. Which oil and gas stocks pay the highest dividends?

    Among the oil and gas companies that pay the highest dividends as of 2015 are Sandridge Permian Trust (PER), Whiting USA ... Read Full Answer >>
  6. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Bonds & Fixed Income

    Bonds: They're Not Just For Seniors

    In this article, we'll show you how investors at any stage of life can keep these fixed-income investments. Keep Reading.
  3. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  4. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  5. Taxes

    Why Retirees Can't Count On Muni Bonds

    Interest may not be tax-exempt for seniors with Medicare or Social Security benefits.
  6. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  7. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  8. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  9. Fundamental Analysis

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  10. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center