Credit unions are similar to banks in that they provide a means to save money, obtain a current account and finance auto and home purchases. Unlike a traditional bank, a credit union is a non-profit organisation and every member of the credit union is a part owner. To become a member of a credit union, you need to satisfy specific criteria. For example, you may need to have a certain profession or children in school in a certain county. Since members are part owners of the credit union, the payment of interest is termed a dividend. Dividends are determined by the Board of the credit union and may be paid monthly, quarterly or annually.
- Skill level:
Things you need
- December credit union statement
- Form 1099-INT or 1099-DIV for credit union account
- Schedule B
- Form 1040
Gather the documents necessary to report the dividends received for the year on your credit union account. The credit union must provide Form 1099-INT or Form 1099-DIV by January 31st of each year for tax preparation purposes. However, if you do not receive either of these forms, the December statement for the account should include the year-to-date dividends received on the account.
Review the documents and verify the dividends received on the account for the year.
Report the dividends received on IRS Schedule B - Interest and Ordinary Dividends. Even though the credit union is reporting dividends, for IRS purposes you will report these dividends as interest. The terminology for credit unions is different from that of traditional banks due to the account holders holding ownership interests in the credit unions. However, the IRS does not consider "dividends" paid by a credit union any different than interest paid by traditional banks.
Enter the credit union name on line 1 of Schedule B, Part I - Interest. Enter the amount of dividends received during the year in the "Amount" column of Schedule B.
Report other interest as necessary on Schedule B. Calculate the total interest received on line 4 of Schedule B and line 8a of Form 1040. The dividends received from the credit union will now be reflected in the income you report to the IRS.
Tips and warnings
- Dividends received from credit unions are generally fully taxable since the dividends are generated from taxable income. Do not assume dividends from a credit union are tax exempt. If you have questions regarding the tax treatment of dividends from your credit union, consult with your tax adviser.
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