My very experienced tax accountant says box 3a Qualified dividends is separate from box 3b Ordinary dividends. The brokerage firm also generates Form 1099-DIV like that: box 1a Qualified dividends is separate from box 1b Ordinary dividends. In other words, Ordinary dividends does not include Qualified dividends,
contrary to what others replying to this thread have said.
I get a warning when I put zero in box 3b Ordinary dividends and some number in box 3a Qualified dividends. The warning says Ordinary dividends must be greater than Qualified dividends. That means TurboTax is going on the assumption that Ordinary dividends includes Qualified dividends. I think that's wrong, unless TurboTax does its tax calculations in a way that still applies capital gains tax rate to qualified dividends and then subtract qualified from ordinary dividends first, then applies income tax rate to the remaining amount.
Can we get an expert answer here?
In here https://www.irs.gov/publications/p550 , I see the following, which strongly suggests Ordinary dividends includes Qualified dividends, but then whoever wrote this explanation might not fully understand the situation either, and the only accurate explanation is to examine the software code used by the IRS to check our returns.
Ordinary Dividends
Ordinary dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive.
Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. They should be shown in box 1b of the Form 1099-DIV you receive.
