Filing Tax Forms as an Investor: 1099-B, 1099-DIV, 1099-R, 1099-INT, and 5498
Find answers to the common tax filing questions we hear from investors like you.
TABLE OF CONTENTS
- How do taxes work for investment accounts?
- How does Tax Impact Preview work?
- What tax forms do I need for a joint account?
- Where do I find my cost basis information or access my realized gains?
- Where can I find my required minimum distribution (RMD)?
- Where can I find Betterment’s Federal tax ID number (FEIN)?
- What is a 1099-B and will I get one?
- Why are the sales proceeds and/or cost basis so high on my 1099-B?
- Where will my TLH+ harvests be represented?
- What is a 1099-DIV and will I get one?
- Why did I not receive a 1099-DIV even though I received dividends?
- Why are the dividend dates on my Activity page different than the pay dates on my 1099-DIV?
- What is a 1099-R and will I get one?
- My taxable amount in Box 2a on my 1099-R is incorrect. Can you correct my 1099-R?
- What is a 1099-INT form and will I get one?
- Why did I not receive a 1099-INT even though I received interest?
Because of the coronavirus pandemic, the IRS has extended tax filing and IRA contribution deadlines. Required minimum distributions have also been waived. Learn more about key changes that may affect you.
All necessary tax forms will be ready for you to download within your account by Feb. 18, 2020. If you are receiving a 1099-R or a 1099-INT, it will be ready even earlier, on Jan. 31, 2020.
If you receive a 1099-B, 1099-DIV, or 1099-R, these forms should be used to file your annual income tax return. If you receive a Fair Market Value (FMV) form and/or a Required Minimum Distribution (RMD) statement for your IRA, these forms do not need to be filed. You can check to see if you have any required minimum distributions due to being a certain age or being the beneficiary of an Inherited IRA. Learn more about RMDs.
Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.
General Tax Questions
How do taxes work for investment accounts?
Taxable Accounts: Individual and Joint
With taxable investment accounts, you generally owe taxes each year on the dividends and other distributions paid to you that year. You may also owe taxes when you sell shares, depending on whether or not you’ve realized capital gains on the investment.
Taxation of Dividends
Most ETFs pay dividends, which are reported on your Form 1099-DIV. These are generally taxable, typically at your ordinary marginal tax rate (0-37%, Federal). For high earners, an additional 3.8% “net investment income tax” applies. Certain ETFs that hold stocks may distribute “qualified” dividends, which are potentially subject to lower tax rates (Box 1b). Some ETFs hold municipal bonds, which pay dividends that are partially or wholly exempt from federal and/or state tax (Box 11 of 1099-DIV).
Some ETFs make distributions and part of them are not taxed as dividends, but instead they are taxed as capital gains, or in other words, return of capital. Capital gains that are distributed are reported on Form 1099-DIV as well (Box 2a). These are usually minimal for the index-based ETFs used by Betterment (indeed, this is one reason why ETFs can be more tax-efficient than mutual funds). Return of capital is rare, but could apply, for example, to real estate ETFs that sell some of their holdings, and is reported in Box 3, 9 or 10 (See IRS Pub 17 for details).
Foreign Tax Paid
For ETFs with non-US holdings, the 1099-DIV can indicate foreign tax paid. This could happen when such ETFs have already paid foreign taxes on distributions made by companies in foreign jurisdictions, before passing them on to U.S. shareholders. To mitigate double taxation on the same income, the U.S. rules potentially allow for a deduction or tax credit for these amounts (Box 7).
Taxation of Capital Gains
We sell your shares when you withdraw, when we assess our fee, when we rebalance your portfolio, when we harvest losses with Tax Loss Harvesting+, when you change your allocation, when you adjust your portfolio strategy, when you transfer to another goal at a different risk level, or if we rebalance your Tax-Coordinated Portfolio. When we sell shares that have gained value, you will owe capital gains taxes. If the investment has lost value, you now have a capital loss, which is used to offset other gains that you realized that year, and any excess loss may be deductible from your earned income, up to a threshold set by the IRS. Losses not used that year may be carried forward to future years.
Traditional IRAs or SEP IRAs
Traditional IRAs and SEP IRAs may afford a deduction against your ordinary income in the tax year during which you contribute funds, if you qualify based on your income. Any dividends you receive are automatically reinvested by Betterment, and grow tax-deferred until you withdraw. When you withdraw from the account, taxes are generally due at your ordinary income tax rate applicable at that time, both on earnings and on all contribution amounts that were previously deducted. Penalties may also be due if you don’t meet the withdrawal qualifications (e.g., you withdraw before age 59.5). Read more from the IRS on IRAs and SEP IRAs.
Roth IRA contributions are made with dollars you’ve already been taxed on—you don’t get a deduction. However, at retirement, as long as you’ve held the account for at least five years and you’ve met the other qualified withdrawal criteria, none of the amount withdrawn is taxed. Any dividends you receive are automatically reinvested by Betterment, grow tax-free, and are also withdrawn tax-free. Read more from the IRS on Roth IRAs.
You can read more on how taxes generally work with various types of investment accounts here.
How does Tax Impact Preview work?
Selling shares is a taxable event—those sales could be triggered by a withdrawal or an allocation change. Tax Impact Preview shows the estimated gains and losses the sale is expected to realize, as well as an estimate of the taxes that may result, in real-time, before the transaction is carried out.
When initiating a withdrawal amount on the Transfer tab or adjusting the allocation slider on the Advice tab, the estimated tax impact will appear, giving you access to a summary of the short- and long-term gains and losses expected to result from the sales.
Tax Impact Preview generates this estimate by “pre-playing” the transaction to simulate the trades that will take place across all of the ETFs that you hold.
To determine those trades, our algorithms first check whether each asset class is over or underweight by comparing your current allocation to your target allocation. The amount of bonds and stocks to sell is determined in a way that brings each asset class back to the portfolio’s target allocation.
Once the specific ETFs and amounts to sell have been determined, Betterment’s algorithms use the TaxMin accounting method to select the specific lots that will be sold. For each ETF, TaxMin selects losses first and short-term capital gains last in order to minimize the tax impacts.
Tax Impact Preview sums up all the losses and gains that are expected to be realized across the different ETFs and tax lots. If your losses outweigh your gains, Tax Impact Preview will estimate your realized losses. If your gains outweigh your losses, estimated taxes owed will be displayed.
The estimated tax is an upper bound, meaning it assumes the highest applicable tax rates of combined federal, state, and medicare surtax. Actual taxes are likely to be different depending on specific circumstances, including, but not limited to, the marginal tax rate applicable to you, any subsequent trading activity, the presence of other capital gains or losses for the year, and securities prices at the moment your execute the trades.
Tax Impact Preview is just an estimate, since it depends on the current prices of each ETF, which won’t necessarily be the price at the time you trade. However, it will give you a good idea of the impact of the transaction. Tax Impact Preview is not tax advice.
What tax forms do I need for a joint account?
The primary account holder, which is the person who originally created the account, will receive the 1099-B and/or 1099-DIV associated with the joint account. Integrations with tax preparation software will only work with the primary account holder’s Betterment account.
We cannot change the primary account holder on a joint account. Since Betterment is not a tax advisor, we highly recommend consulting with a tax professional for further questions regarding how to file your taxes in a joint account.
Where do I find my cost basis information or access my realized gains?
Your total cost basis information will be on Form 1099-B, which will be available on Feb. 16, 2021.
The 1099-B will list your total cost basis information, broken out between short-term and long-term transactions. Detailed cost basis information for each sale transaction will be available on subsequent pages of the form.
Note that although you can run your own cost basis or realized gains reports in your account, these are not official tax forms.
Where can I find my required minimum distribution (RMD)?
You generally have to start taking required minimum distributions (RMDs) from your Traditional IRA account after you reach a certain age. Roth IRA accounts do not require withdrawals while you own them. You can find your RMD amount, if applicable, on your FMV or Form 5498 by clicking here.
Where can I find Betterment’s Federal tax ID number (FEIN)?
Our Federal tax ID number (FEIN) will be located on your tax forms in the top left-hand corner. You can download your tax forms within your account by Feb. 16, 2021.
Form 1099-B for Taxable Accounts
What is Form 1099-B? Will I get one?
The 1099-B reports proceeds from the sale of stocks, bonds, or other securities. Proceeds are simply the amount of money you received in exchange for selling your shares. We sell your shares when you withdraw, when we assess our quarterly fee, when we rebalance your portfolio, we harvest losses with Tax Loss Harvesting+, when you change your allocation, when you adjust your portfolio strategy, when you transfer to another goal at a different risk level, or if we rebalance your Tax-Coordinated Portfolio.
You will receive a 1099-B by Feb. 16, 2021, if you had a Betterment taxable account and:
- Your gross proceeds from selling shares are more than $20, or
- You had any amount of federal tax withholding
Why are the sales proceeds and/or cost basis so high on my 1099-B?
The sales proceeds figure, as defined in your tax forms, is simply the amount of money you received in exchange for selling your shares this year.
The cost basis is the amount of money you paid to purchase the shares that are being sold, with possible adjustments for wash sales and non-dividend distributions.
Your sales proceeds and cost basis on your 1099-B may be much higher than your portfolio’s earnings or balance was at any given time, because these proceeds represent the total amount of cash proceeds from the sale of securities, even if said proceeds were then used to buy securities again.
Here’s an example. Let’s say you purchase a fund for $500. Your cost basis begins at $500 because that is what you originally paid.
Let’s say the fund increases in value, and later you sell it for $700. Your net gain is $200, but your proceeds are $700 because you received $700 in exchange for selling the fund.
After that, say you purchase more of the fund for $600 dollars and sell it when its value decreases to $500. Your net loss is -$100 for that transaction, but your proceeds are $500 because you received $500 in exchange for the sale of the funds.
Your balance may not have exceeded $700 (the highest it was before you sold the fund), but your total “gross proceeds” are $1,200 ($700 + $500) because it represents the amount of total money that you received whenever funds were sold during the year.
Rebalancing, allocation changes, and Tax Loss Harvesting+ can all increase your aggregate proceeds and cost basis to many times what your balance was during the year, but it’s really the same funds being used. The important number, for tax purposes, is the difference between your overall cost basis and proceeds—not either number on it’s own.
Where will my TLH+ harvests be represented?
Tax Loss harvesting+ is the practice of selling a security that has experienced a loss. By realizing, or “harvesting” a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, which helps maintain an optimal asset allocation and expected returns. While Betterment tracks your TLH+ losses within your account and displays them to those who have enabled the feature, the IRS requires Betterment to report total gain and loss figures from all sales during the tax year on Form 1099-B.
Your TLH+ harvests are simply recorded losses that are netted against any other gains and losses that were realized from the sale of shares.
Your 1099-B reflects your total net gain or loss on Page 4, between Box 1e and Box 1g, in the Short-Term Summary, as well as the Long-Term Summary.
Here are a few common reasons why the net gain/loss figure on your 1099-B may not match the amount of your TLH+ harvests.
- You requested an allocation change, which realized gains or losses.
- You requested a withdrawal, which realized gains or losses.
- You requested a goal to goal transfer, which realized gains or losses.
Example 1: TLH+ captures a $10,000 long-term loss on a 5/28/2020. You choose to do a withdrawal on 10/15/2020 which generates a $11,000 long-term gain. The Form 1099-B will reflect a net long-term gain of $1,000.
Example 2: TLH+ captures a $10,000 long-term loss on a 5/28/2020. You choose to do a withdrawal on 10/15/2020 which generates a $3,000 long-term loss. The Form 1099-B will reflect a net long-term loss of $13,000.
Form 1099-DIV for Taxable Accounts
What is Form 1099-DIV? Will I get one?
The 1099-DIV reflects dividend payments received and capital gains distributions from stocks you own.
You will receive one by Feb. 16, 2021, if you had a Betterment taxable account and:
- You received more than $10 in dividends in 2020, or
- You paid any foreign or federal taxes within your account
Please note that while Betterment is not required to issue you a 1099 if you earned a relatively small amount of income from your account, taxpayers are still required under IRS rules to report and pay taxes on any earned income.
Why did I not receive a 1099-DIV even though I received dividends?
A 1099-DIV form reports dividends a customer received during the year. You will receive a 1099-DIV if your dividends amount to $10 or more over the course of the year. Even if the amount of dividends received is below $10, the 1099-DIV is required if there were any foreign or federal taxes paid.
Find your total dividends by logging in and filtering by “Dividends” for the previous calendar year. You can then download a CSV statement to total up dividend activity for that year.
Please note that while Betterment is not required to issue you a 1099 if you earned a relatively small amount of income from your account, taxpayers are still required under IRS rules to report and pay taxes on any earned income.
Why are the dividend dates on my Activity page different than the pay dates on my 1099-DIV?
When dividends are paid, it may take two or three days for the reinvestment in your account to complete. Dividend reinvestment trades are displayed on Activity on the date the transaction completes. However, dividends are reported on your tax forms on the date they were paid, which will be several days prior to the date of reinvestment.
Form 1099-R for IRAs and 401(k)s
What is Form 1099-R? Will I get one?
The 1099-R reports distributions from retirement accounts, like IRAs and 401(k)s.
You will receive one from Betterment if you had a Betterment IRA or 401(k) account and:
- You requested $10 or more in total distributions from Betterment IRAs or Betterment 401(k)s in 2020, or
- You completed a rollover from a Betterment 401(k) to another retirement plan, or
- You completed a rollover from a Betterment IRA to an employer sponsored plan like a 401(k) or 403(b), or
- You completed an indirect rollover (in a 60 day window) from a Betterment IRA to another IRA, or
- You completed a Roth IRA conversion, or
- You recharacterized an IRA during the tax year, or
- You had any amount of tax withholding
You will not receive a 1099-R for a direct trustee-to-trustee transfer from a Betterment IRA to an IRA at another institution.
My taxable amount in Box 2a on my 1099-R is incorrect. Can you correct my 1099-R?
We cannot make changes to Box 2a of the 1099-R. It is the customer’s responsibility to determine the appropriate taxable portion when filing their tax return by completing the Form 8606.
The taxable amount in Box 2a on the 1099-R is frequently incorrect for Traditional IRA and Roth IRA distributions. This can happen at many investment firms. Read below to see why this is the case, and how you can correct it when filing your taxes.
- The taxable portion of a Traditional or Roth IRA distribution is determined by your total amount of after-tax (no deduction allowed) contributions across all investment firms. Betterment does not know if you have made contributions elsewhere.
- The taxable portion of a Traditional IRA distribution is determined by the value of Traditional, SEP, and Simple IRA accounts held by all investment firms, not just Betterment, and Betterment can’t report to the IRS information from other firms. A customer can determine the “true” taxable portion of a Traditional or Roth IRA distribution by following the instructions for and completing Form 8606.
A common error for a customer who makes an after-tax Traditional IRA contribution and converts those funds to a Roth IRA (backdoor Roth IRA contribution) is failing to report the contribution and conversion on Form 8606. If a taxpayer does not file Form 8606, the IRS will likely make a conservative estimate and assume the entire amount of the distribution is taxable (even though that may not actually be true).
Form 5498 for IRAs
How do I report my IRA contributions?
You will receive a Form 5498, which will be downloadable in your account by June 1st, 2021, if you had made annual or rollover contributions into your Betterment IRA. Direct transfers into your IRA will not be reported, per IRS requirements. You do not need to send the 5498 to the IRS—we will report it for you. Note that the 5498 is generated after the tax filing deadline. The reason for this is because it’s up to you to self-report your IRA contributions, and the purpose of the 5498 is just to consolidate what you reported versus what your activity actually was.
Form 1099-INT for Cash Reserve
What is a 1099-INT form and will I get one?
You will receive one by Feb. 1, 2021, if you had Cash Reserve, and:
- You received $10 or more in interest in 2020, or
- You paid any federal taxes from your interest due to backup withholding.
Please note that while Betterment is generally not required to issue you a 1099-INT if you earned less than $10 of interest from your account, taxpayers are still required by the IRS to report and pay taxes on any earned income. You can see your interest history from the Activity page in your account here.
Why did I not receive a 1099-INT even though I received interest?
A 1099-INT form reports interest received during the year. You will receive a 1099-INT if your interest amounts to $10 or more over the course of the year. If the amount of dividends received is below $10, a 1099-INT is required if there were any federal taxes paid due to backup withholding.
Please note that while Betterment is generally not required to issue you a 1099-INT if you earned less than $10 of interest from your account, the IRS requires taxpayers are still required by the IRS to report and pay taxes on any earned income. You can see your interest history from the Activity page in your account here.
Betterment Cash Reserve
Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.
Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.
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