Dividends

A fund receives income generally in the form of dividends and interest on its investments in portfolio securities. This income, less the fund’s operating expenses, constitutes the fund’s net investment income from which dividends may be paid to shareholders. Dividends are reported on IRS Form 1099-DIV; for the 2013 tax year, look for this form to arrive by the middle of February 2014. Two types of income dividends can be paid out:

Ordinary dividends are taxed at an investor's ordinary income tax rate.

Qualified dividends

When a fund receives dividends from domestic corporations and qualified foreign corporations, they are considered qualified dividend income. For 2013, qualified dividend income is taxed at rates of 0%, 15%, or 20% depending on your taxable income bracket, as shown in the table below. See the 2013 IRS Form 1040 instructions for more details.

Dividend taxation rate for 2013*

If your income tax
bracket is...
Your qualified dividends
taxation rate is...
10% 0%
15% 0%
25% 15%
28% 15%
33% 15%
35% 15%
39.6% 20%

* An additional 3.8% Medicare tax may be imposed on certain net investment income to the extent the recipient's gross income exceeds a threshold amount.

The information contained in the Tax Center is not intended to be legal or tax advice. If you need assistance preparing your tax return, please consult a tax advisor.

Information may be abridged and therefore incomplete. Any discussion pertaining to taxes in this communication (including attachments) may be part of the promotion or marketing of a product. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.