Distributions and Taxes
Fund distribution types and how they’re taxed
Fund distributions can generate questions, especially at tax time. Mutual funds must distribute at least 98% of their annual income to investors for the funds to avoid taxation. Learn about four types of income funds that may distribute based on their investments.
Types of Distributions
Keep in mind, the amount of a distribution can increase when the dividend payments or profits increase. A fund's capital gain distribution, however, is not necessarily a reflection of its overall performance.
How You Are Taxed
Distributions generally are subject to federal income taxes and may be subject to state and local taxes, whether you reinvest them or take them in cash. The tax status of a capital gain distribution is determined by how long the mutual fund held the underlying security that was sold, not by how long you have been invested in the fund.
Note: At the time distributions are paid, the type of income may not be fully known. The distribution classification for tax purposes will be determined at the end of each Fund's tax year and appear on Form 1099-DIV. For this reason, amounts shown on your statements and your tax forms may differ.
Taxation of Capital Gains and Qualified Dividends
The Tax Cut and Jobs Act changed the income tax amount breakpoints for each of the reduced capital gain rates, and will now be indexed for inflation. The changes made by the Tax Cut and Jobs Act will sunset after 2025, and the income rates will revert to pre-2018 income tax rates and amount thresholds, adjusted for inflation.
LONG TERM RATE | MARRIED FILING JOINTLY* | SINGLE* |
0% | $0 to $78,750 | $0 to $39,375 |
15% | $78,251 to $488,850 | $39,376 to $434,550 |
20% | More than $488,851 | More than $434,551 |
The changes made by the Tax Cut and Jobs Act will sunset after 2025, and the income rates will revert to pre-2018 income tax rates and amount thresholds, adjusted for inflation.
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IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.