When you have ordinary dividends and qualified dividends (line 3a and 3b on 1040) Are those amounts two separate incomes that should be counted together?

Forum|Forum|7 years ago
June 1, 2019
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Best answer by CalCountry

Question and answer updated for 2018 : Former dividend lines 9a and 9b are now lines 3a and 3b.

No, they are not added together. Your qualified dividends are subset of your total ordinary dividends. Line 3b is your taxable amount. Line 3a is merely reporting the qualified dividends portion of line 3b.

Line 3a is broken out because qualified dividends receive favorable tax treatment equivalent to that on long term capital gains. See your "Qualified Dividends and Capital Gain Worksheet" for how they affect your tax obligation.

CalCountryAnswer

Level 6

Question and answer updated for 2018 : Former dividend lines 9a and 9b are now lines 3a and 3b.

spm_no

Level 3

I'd like to thank Intuit for it's clear and concise reply. The IRS form 1040 line 3b is titled "Ordinary Dividends" which gives the false impression that it excludes the qualified dividends on line 3a. As you noted, line 3b is actually the total taxable dividends which includes the qualified dividends on line 3a. If the IRS would simply re-title line 3b to "Total Taxable Dividends" then it would eliminate a lot of unnecessary confusion.

spm_no

Level 3

To be correct, tax topic 404 probably should read:

"Whereas ordinary dividends, that are not qualified, are taxable as ordinary income. Qualified dividends that meet certain requirements are taxed at lower capital gain rates..."

However, tax topics are more like a FAQ and are not official IRS publications, and tax topics are often incomplete. Tax topics should not be relied on the same way as form instructions or publications.

Yes, I agree with you. The point I was trying to make is that almost all web pages get this wrong, i.e. they view ordinary dividends and qualified dividends as two separate things (each having their own tax rates), rather than qualified dividends being a subset of ordinary dividends. See for example Investopedia (https://www.investopedia.com/terms/o/ordinary-dividends.asp) which says:

"The main differences between ordinary dividends and qualified dividends are the rates at which the gains are taxed. "

My initial comment was to acknowledge that Intuit actually gave the correct answer unlike most other web pages.