Dividends need to be reported as 'Other Income'

Posted: Friday, February 13, 2004

Due to changes in federal tax codes, it makes a difference where Alaskans report their permanent fund dividends this year. Taxpayers should report their dividends as "Other Income" on their federal tax returns, not as dividend income.

"Some people in the past have reported it as dividend income because of the name," said Internal Revenue Service spokesperson Judy Monahan.

In the past, dividend income was taxed at the same rate as the taxpayer's regular income. On this year's tax return, however, dividend income will be taxed at different rate the capital gains rate which is lower than the rate at which most filer's regular income is taxed. Therefore, improperly reporting permanent fund income as dividend income could lead to a miscalculation of the filer's federal tax liability a miscalculation not in the taxpayer's favor.

In plain English, report permanent fund income as "Other Income" or else, "You could owe more money," Monahan said.

Monahan stressed that the change in federal tax law did not change how Alaskans should report permanent fund income, just the consequences of making the common error of misreporting it.

"It always should have been reported as 'Other Income,'" she said. However, "when dividends were taxed as ordinary income it didn't matter."

Taxpayers should report their permanent fund dividends on Line 21 on Form 1040, or Lines 13 and 3 on Forms 1040A and 1040EZ, respectively.

Monahan reminds parents that the permanent fund income of children under 14 may be reported on their parent's tax return using Form 8814, Parents' Election to Report Child's Interest and Dividends. Children 14 and older as of Jan. 1 must file their own return.

Federal income tax filing information can be found at the new "1040 Central" link on the IRS's Web site at www.irs.gov or call the IRS toll free at (800) 829-1040. IRS forms and publication can be downloaded from the Web site or ordered by calling (800) 829-3676.

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