On form 1099-DIV why do I pay taxes on the sum of 1a, 1b, and 2b? I never received this money yet it was reinvested.

[dorisrusso]

Why am I paying taxes that were reinvested.  I haven't received this money yet.

[SteamTrain]

Even if re-invested...it must be reported if the Financial institution provided a 1099-DIV.  The entries are reported and entered on your tax return for "possible" taxation.  Whether they are taxed or not depends on your total income, and how great your 1b and 2a values along with any other Capital gains.....because the lowest levels of Cap gains and Qualified Dividends are taxed at 0%.  But that all depends on what else is on your tax return.

Only dividends and capital gains within a retirement account (IRA,  401k, TSP, etc) are not reported as income until actually removed.

[Nardi]

But how I figure out whether they were actually taxed? what is the income limit that triggers taxation. I thought reinvested dividends and capital gains in an IRA were tax free until withdrawal as that was the purpose.

[jtax]

1099-DIV forms will not be issued for an IRA account. Check again, it has to be for a non-IRA account. You are correct that IRA account income will not be taxed until the money is taken out of the IRA. Then you will receive a 1099-R (R for retirement) form with the withdrawal amount.

The reason dividend reinvestment is taxed in a NON-IRA account is because you have received something of value, the extra shares bought with the dividend. For income tax the form of the income does not matter. Any income is taxable unless there is an except. Doesn't matter if it is cash, barter, etc.

Think of it this way. Your account got the dividends and you used it to buy more shares. If you had used it to buy clothing or a TV or whatever, you would expect it to be taxed. Same thing here.

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[stevestock22]

Does this mean we will also be paying tax on this money when we start withdrawing our money at retirement age?

Thanks Steve

[JohnB5677]

No! Money that you paid taxes on does not get taxed again.  The 1099-DIV was taxed when it was issued because you had the option to take it. 

You chose to reinvest it, but it was issued.  Therefore it is taxable.  Going forward, this dividend will become part of the tax basis, and you will not be taxed again.

Reporting Dividends

@stevestock22