Harbor Funds | Frequently Asked Questions - Understanding Form 1099-DIV

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Understanding Form 1099-DIV
What is the difference between short-term and long-term capital gains? Show
Short-term gains are gains on securities held one year or less. These gains are taxed at the same rate as ordinary income and are included along with ordinary income in Box 1a of Form 1099-DIV. Long-term gains are gains on securities held more than one year. These gains are generally taxed at a lower rate and are reported in Box 2a of Form 1099-DIV.
Why are qualified dividends less than 100% of total ordinary dividends for my Fund? Show
Total ordinary dividends may include other income which is not qualified dividend income. If a fund's income from sources which are not qualified dividend income exceeds fund expenses, the fund will distribute at least some dividends that are not qualified. Sources of income that are not qualified dividend income include interest, capital gains, securities lending income, certain preferred or foreign dividends, dividends from real estate investment trusts (REIT dividends), and dividends on securities where the Fund did not meet certain holding period requirements.

Mutual fund shareholders are subject to the same holding period requirements as the fund in order to take advantage of the lower tax rate on qualified dividend income. You must hold your Harbor Funds shares for at least 61 days during the 121 days beginning 60 days before the ex-dividend date. As an example, for Harbor Funds' qualified dividend distributions in December, 2011, the ex-dividend date was December 16, 2011. You must have held the shares for 61 days between October 18, 2011 and February 15, 2012 to qualify for the lower tax rates.
Why may the price of a share decline when a distribution is made? Show
On all funds except the Harbor Money Market Fund, income in a fund is accumulated and reflected in the fund's Net Asset Value (NAV) until it is distributed. Once distributed, the amount of the distribution is deducted from the NAV. Capital gain distributions have the same effect on a fund's NAV. Throughout the year, securities are sold from the portfolio, some at a gain and some at a loss. These gains and losses are included in the NAV of a share. When a net gain is distributed to shareholders, it is deducted from the NAV, reducing the NAV by the amount of the distribution.
When will I receive Form 1099-DIV? Show
The 1099-DIV and 1099-B forms will be sent in one consolidated statement, which will generally be mailed by mid-February.
If federal income tax was withheld from my distribution, will it appear on Form 1099-DIV? Show
Yes, the amount withheld for federal income tax will appear in Box 4 of the form.
Why does my Form 1099-DIV have an amount in Box 6 for Foreign Tax Paid? Show
The fund had investments in foreign securities. The income from these investments is subject to foreign taxes. Individuals should refer to IRS Form 1116 and corporations should refer to Form 1118 to determine if they may take a deduction or tax credit. For more information, please go to the frequently asked questions on foreign tax paid.
Why didn't I receive a Form 1099-DIV? Show
The following may be reasons why Harbor Funds didn't issue you Form 1099-DIV:
  • Total dividends and capital gain distributions from the fund were less than $10.00 and you did not have backup withholding. Regardless of whether you received a Form 1099-DIV, your year-end statement will show the amount of dividends and capital gains that were paid to you throughout the year.
  • The fund you invested in did not pay a distribution during the calendar year.
  • The tax status on your account may be listed as "exempt recipient". A corporation, charitable organization, IRA, political subdivision or pension/profit-sharing plan may be exempt from reporting.
  • Nonresident aliens will not receive a Form 1099-DIV. Form 1042-S will be mailed to nonresident aliens by March 15.
Why did I receive Form 1099-DIV if my dividends and capital gains were reinvested and I never actually received any cash? Show
Distributions of dividends and capital gains are taxable and must be reported on your tax return regardless of whether you receive them in cash or reinvest them in additional shares.
What is the difference between qualified and nonqualified dividends? Show

For a dividend to be qualified, the mutual fund company must hold the shares for at least 61 days. If the shares are sold prior to 61 days and a dividend was paid during that time period, the dividend is considered nonqualified. Nonqualified dividends may be subject to your ordinary income tax rate. In addition, as a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, qualified dividends may receive the same low tax rates as long-term capital gain.