Nominee Dividend

A nominee dividend is a cash dividend payment that a person receives on behalf of the owner of record of a stock. An individual receiving a nominee dividend is responsible for paying income tax on it unless the dividend is passed on to its rightful owner. (The nominee is considered the owner of record.) If the dividend is passed on by the recipient, the recipient notifies the Internal Revenue Service (IRS) of the transfer in order to remove his or her obligation to pay taxes on it. The recipient of a nominee dividend should use either Schedule B of Form 1040A or 1040 or Form 1099-DIV (if a security is held "in street name") to notify the IRS that the dividend has been transferred to the owner of record, who then becomes responsible for paying taxes on the dividend income.

To illustrate, a nominee dividend could apply in the following situation. Suppose a sister and brother open a brokerage account together and purchase a dividend-paying stock in that account. Because the sister is listed first on the account, the brokerage firm reports to the IRS that she, the holder of record, received the entire dividend during the tax year. Since she actually shared the dividend with her brother, she must file form 1099-DIV so that the IRS will only hold her responsible for the portion of dividends she actually kept. Her brother will receive a copy of the 1099-DIV indicating the portion of the dividend — placed in his name as nominee — that he received and is responsible for paying tax on.