If you live in Alaska and receive an Alaska Permanent Fund dividend payment in a given year, you do have to claim it on your federal taxes. Your child may receive Alaska Permanent Fund dividends that may need to be reported to the Internal Revenue Service as well. In some cases, your child's dividends can be reported on your federal taxes, which may help you avoid having to file a separate return.
What Are Alaska Permanent Fund Dividends
The state of Alaska has valuable oil-producing natural resources that generate a substantial amount of royalty income each year. Residents of the state receive a share of the wealth through annual payments that are made by the Alaska Department of Revenue. These payments, officially known as Alaska Permanent Fund dividends, vary in amount each year and are paid out of a special fund that's reserved exclusively for eligible residents.
Alaska Permanent Dividends Are Taxable
Despite the uniqueness of a state making annual dividend payments to its residents, Alaska Permanent Fund dividends are fully taxable on your federal taxes just like most of the other money you earn. Moreover, the dividends are taxed at ordinary income tax rates, which are the same progressive rates as your wages, business earnings, alimony and income from most other sources -- with the exception of net long-term capital gains, for example.
How to Report Your Dividends
Tax return forms don't include a specific line for reporting Alaska dividends. Instead, the dividends are reported on the “Other income” line of your return, which the 1040, 1040A and 1040EZ forms all include. Your tax form may designate a line for dividend income, but this is reserved for investment-related dividends. The state of Alaska reports each payment it makes on a 1099-MISC form and makes copies available to the Internal Revenue Service. When preparing your federal taxes, you can access your 1099-MISC on the Alaska Department of Revenue website to verify the dividend amount to report. If your 1099-MISC also reports an amount withheld for federal income taxes, enter the withheld amount in the “Payments” section of your return so that you don't overpay your tax bill or reduce a refund.
Your Child's Dividends
Alaska Permanent dividends are also paid to children who are residents of the state. If your son receives a dividend payment, for example, it's still taxable in his hands and must be reported on his tax return if he's required to file one. Dependents are subject to different filing rules than adults and generally have to file a federal tax return on lower amounts of income. If your son has to claim his dividend payment under the dependent tax filing rules, you may have the option of reporting it on your own return instead if the dividend is his only source of income, or if his other income consists solely of taxable interest and investment dividends. To do this, you have to prepare Form 8814 and file it with your own federal taxes.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.