Yahoo Answers is shutting down on May 4th, 2021 (Eastern Time) and beginning April 20th, 2021 (Eastern Time) the Yahoo Answers website will be in read-only mode. There will be no changes to other Yahoo properties or services, or your Yahoo account. You can find more information about the Yahoo Answers shutdown and how to download your data on this help page.
Trending News
In-lieu vs. Qualified dividends?
I just talked to a customer service rep at my online stock trading brokerage. Th long story is he informed me that my holdings have two types of dividends: qualified dividends and in-lieu dividends. He told me in-lieu dividends are dividends received on shares that have been loaned out to other people. So if I have 100 shares of XYZ stock, the broker loaned it to someone else and the company paid dividends, they show as In Lieu. When I asked if that means they are no longer "Qualified" in terms of preferential tax treatment, he said that is correct.
Does this make sense? Is what he is telling me true? I can have shares of a company, the broker can loan them out and as a result I lose the preferential taxt treatment on the dividends of those shares?
1 Answer
- JoeyVLv 79 years agoFavorite Answer
Your broker is telling you the truth. This was, IMHO, an oversight of the Jobs and Growth Tax Relief Reconciliation Act of 2003 which established qualified dividends because it screws people who keep their dividend paying stocks in a margin account. The good news is that there are brokers who treat you fairly, like Fidelity, that give you a credit that covers the additional tax cost. In fact, at Fidelity you get a 30.77% credit for all In lieu dividends that you receive which is supposed to compensate you for the difference between 15% and the highest Federal bracket of 35%. If you are in the 28% bracket, Fidelity's compensation more than rewards you for the increased taxes so you make money having your dividend paying stocks in your margin account (not much, but what the heck).
Ask your broker if they offer that. If they don't and you want to keep a significant number of dividend paying stocks in a margin account, you need to shop around (I do not think Fidelity is the finest place in the world to store stocks, but it's not terrible).