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. Form 1099-INT

    The form issued by all payers of interest income to investors ...
  2. Alternative Minimum Tax - AMT

    A tax calculation that adds certain tax preference items back ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  6. Dividend Tax Credit

    The amount a Canadian resident applies against their tax owing ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. Bonds: They're Not Just For Seniors
    Bonds & Fixed Income

    Bonds: They're Not Just For Seniors

  3. The Basics Of Municipal Bonds
    Bonds & Fixed Income

    The Basics Of Municipal Bonds

  4. Avoid Tricky Tax Issues On Municipal ...
    Taxes

    Avoid Tricky Tax Issues On Municipal ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center