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What are 'Gross Dividends'

Similar in concept to gross income, gross dividends are the sum total of all dividends received. Gross dividends include all ordinary dividends that are paid, plus capital-gains distributions and nontaxable distributions received by the taxpayer during the year before taxes, fees and expenses are deducted.

BREAKING DOWN 'Gross Dividends'

Most gross dividends are reported on Form 1099-DIV. Ordinary dividends are reported in box 1a, while the other forms of dividend income are listed elsewhere. All dividends are considered ordinary unless they are specifically classified as qualified dividends. Box 1b is for qualified dividends which shows the portion of the amount in box 1a that may be eligible for reduced capital gains rates. Box 3 shows non-dividend distributions.

A 1099-DIV is required to be sent to anyone who has received dividends (including capital gain dividends and exempt-interest dividends) and other distributions on stock of ten dollars or more, or if funds were withheld to pay foreign tax on dividends and other distributions on stock over a given year. Not all dividend income reported on the 1099-DIV is reported on Schedule B.

In many countries, the income from dividends is treated at a more favorable tax rate than ordinary income. Investors may look to dividend-paying stocks in order to take advantage of potentially more favorable tax conditions. The amount of tax owed on dividends depends on overall income and whether the dividends are qualified or nonqualified.

Example of a Gross Dividend Versus Net Dividend

As an example, let's say that company ABCXYZ decides to issue a dividend of $1.20 to its shareholders. This means for each share owned, the company pays $1.20 in dividends. If a shareholder owned 1,000 shares, they would receive an annual payout of $1,200 in gross dividends. Companies in the U.S. typically pay quarterly dividends, while non-U.S. companies generally pay annual or semi-annual dividends.

If the dividend was considered an ordinary one and taxed at a rate of 35 percent, with another two percent going toward fees and expenses, the net dividend would actually be $756. If the dividend was a qualified one instead, with a reduced tax rate of 15 percent, the net dividend would actually be $996.

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