Solved: 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?
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rjtherealtor
Level 1

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?

 
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Accepted Solutions
CalCountry
Level 6

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?

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.

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10 Replies
CalCountry
Level 6

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?

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.

View solution in original post

spm_no
Level 2

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?

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.

macuser_22
Level 15

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?


@spm_no wrote:

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.


You seem to think that qualified dividends are not also ordinary dividends. 

 

All dividends on the 1099-DIV lines 1a are "ordinary dividends".  A *portion* of those ordinary dividends might also be qualified dividends that qualify for special tax treatment.

 

The 1040 instructions say:

 

Line 3b
Ordinary Dividends
Each payer should send you a Form
1099-DIV. Enter your total ordinary dividends
on line 3b. This amount should
be shown in box 1a of Form(s)
1099-DIV.

 

Line 3a
Qualified Dividends
Enter your total qualified dividends on
line 3a. Qualified dividends also are included
in the ordinary dividend total required
to be shown on line 3b. Qualified

dividends are eligible for a lower tax
rate than other ordinary income. Generally,
these dividends are shown in
box 1b of Form(s) 1099-DIV. See Pub.
550 for the definition of qualified dividends
if you received dividends not reported
on Form 1099-DIV.

 

The IRS 1099-DIV instructions say:

 

Box 1b. Qualified Dividends
Enter the portion of the dividends in box 1a that qualify for the
reduced capital gains rates.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
spm_no
Level 2

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?

Thanks for your reply.  The quote below is from the IRS (https://www.irs.gov/taxtopics/tc404) and is what caused my initial confusion.  It says that ordinary dividends are taxed as ordinary income.  If so, why would ordinary dividends include qualified dividends which are not taxed as ordinary income?  It seems like a contradiction.

 

"Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates. "

dmertz
Level 15

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?

Unfortunately, Tax Topic 404 is inaccurate.  If you go to the reference provided in Tax Topic 404,  https://www.irs.gov/pub/irs-pdf/p550.pdf, you'll find that it says, "Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain."  In other words, qualified dividends are a subset of ordinary dividends.

macuser_22
Level 15

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?

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.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
spm_no
Level 2

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?

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.

taxchamp
Level 2

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?

I think the crux of the issue is that when the taxpayer inputs total ordinary dividends  (or has it downloaded from external source) and that total is shown on 1040 line 3b and that taxpayer also has some "qualified dividends" in 3a, the taxpayer wonders, "how am I getting a lower tax rate on the qualified dividends since the total ordinary dividends flows down to line 15, Taxable Income.

 

If someone from Turbo Tax can explain this, it sure would help many.

macuser_22
Level 15

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?

The amount of qualified dividends on line 3a on the 2020 1040 is used to calculate the tax on line 16 using the "Qualified Dividend and Capital Gains Worksheet".

 

"Taxable Income" and "Tax" are not the same thing.

 

You can print all forms and worksheets to see the calculations.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
taxchamp
Level 2

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?

Many thanks for that very helpful advice.  I reviewed the worksheets and it makes sense.  Thanks !!!!!

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