ESOP STOCK DIVIDENDS REPORTED ON FORM 1099-R (2024)

FAQs

Where do I report ESOP distribution on my tax return? ›

Form 1099-R - Dividends Distributed from an ESOP.

Distributions of section 404(k) dividends from an employee stock ownership plan (ESOP), including a tax credit ESOP, are reported on Form 1099-R. Distributions other than section 404(k) dividends from the plan must be reported on a separate Form 1099-R.

Dividend income is the distribution of earnings to shareholders. If you're a U.S. taxpayer with at least $10 in dividend income, you'll receive a 1099-DIV form from your brokerage, along with a consolidated 1099 form.

Amounts totally exempt from tax, such as workers' compensation and Department of Veterans Affairs (VA) payments are not typically reported on Form 1099-R unless part of the distribution is taxable and part is nontaxable.

Deduction for Dividends Paid to ESOP Participants

The dividends will be fully taxable to participants (or beneficiaries), but will be exempt from income tax withholding. The deduction is allowed for the taxable year in which the dividends are paid to participants (or beneficiaries).

Distributions before age 59-½ or for death, termination after age 55, or disability are subject to a 10% penalty tax. Employees can roll distributions over into a traditional IRA or another qualified retirement plan to defer taxation until the funds are withdrawn according to regulations.

Enter the ordinary dividends from box 1a on Form 1099-DIV, Dividends and Distributions on line 3b of Form 1040, U.S. Individual Income Tax Return, Form 1040-SR, U.S. Tax Return for Seniors or Form 1040-NR, U.S. Nonresident Alien Income Tax Return.

If you receive over $1,500 of taxable ordinary dividends, you must report these dividends on Schedule B (Form 1040), Interest and Ordinary Dividends. If you receive dividends in significant amounts, you may be subject to the Net Investment Income Tax (NIIT) and may have to pay estimated tax to avoid a penalty.

Form 1099-R is issued when a taxpayer doesn't make the required loan payments on time. When this occurs, the amount not repaid is considered a distribution and is usually reported on Form 1099-R with the distribution code L.

If you receive a Form 1099-DIV and do not report the dividends on your tax return, the IRS will likely send you a CP2000, Underreported Income notice. This IRS notice will propose additional tax, penalties and interest on your dividends and any other unreported income.

Do stock dividends count as income? ›

All dividends paid to shareholders must be included on their gross income, but qualified dividends will get more favorable tax treatment. A qualified dividend is taxed at the capital gains tax rate, while ordinary dividends are taxed at standard federal income tax rates.

All dividends are taxable and this income must be reported on an income tax return, including dividends reinvested to purchase stock.

Often, the IRS will recalculate your tax return by including the missing income and determining the amount of tax they think that you owe. This can include penalties and interest.

If your 1099R Statement Box 2. a for the Taxable Amount is marked as 'Unknown'; this means that OPM did not calculate the tax-free portion of your annuity.

Taxpayers may need to file an amended return if they filed with missing or incorrect info. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.

ESOP distributions are taxed as ordinary income, but if you receive a lump-sum distribution in the form of stock, you'll generally pay ordinary income tax on the value of your employer's contributions to the plan, plus capital gains tax on the appreciation in stock value when the stock is sold.

Any compensation income received from your employer in the current year is included on Form W-2 in Box 1. If you sold any stock units to cover taxes, this information is included on Form W-2 as well. Review Boxes 12 and 14 as they list any income on Form W-2 related to your employee stock options.

Dividend distributions paid to shareholders of an S corporation are reported on Form 1099-DIV Dividends and Distributions , and on Schedule K, Line 17c. Loan repayments to shareholders are reported on Schedule K, Line 16e, and on each individual shareholder's Schedule K-1, line 16, with "E" as the reference code.

The 1099-R shows reporting of the distribution and the 1099-B shows both amounts. The 1099-R is titled *COMPANY NAME* and "ESOP Allocation; "Distributions from Pension, Annuities, Retirement/Profit Sharing Plans, IRAs, etc."