A Reason to Procrastinate

Why the confusion? There are two big issues behind that:

The first affects your Form 1099-DIV -- your dividend distributions. Back in 2003, the Jobs and Growth Tax Relief Reconciliation Act introduced a new category of qualified dividend income that was taxable at federal rates. Those dividends are not subject to the ordinary income tax rates like other dividends, as long as they meet certain criteria. Instead, qualified dividends are taxed at a maximum rate of 15%. But companies must report regular dividends and qualified dividends separately on Form 1099-DIV, and they're still having a tough time separating them.

The second problem is new this year and screws up your Form 1099-INT. Thanks to a mid-2006 congressional decree, any portion of your tax-free interest that might be subject to the alternative minimum tax (AMT) must now be reported separately on your 1099-INT. So two new boxes are on the form. Box 8 now reports all your tax-exempt interest. Box 9 shows the portion of that interest that is from qualified private activity bonds and needs to be reported for AMT purposes.

Yuck. But it's pretty obvious why some banks and fund families are having a difficult time getting this info together. Thanks to these onerous rules, errors are on the rise. Don't be surprised if a corrected 1099 shows up in your mailbox over the next few weeks. The correction rate jumped to 14%, from 5% to 8% in the few years since the new qualified dividends were introduce.