When is a dividend not a dividend?
When a “dividend” paid by a mutual fund doesn’t qualify for the dividend tax cut just approved by Congress.
All types of mutual funds, including cash-like money market funds, pay what are called “dividends” to investors. But not all of those dividends are what Congress had in mind when it decided to slash the top rate on stock dividends to 15% from the current 38.6%.
Income paid out to shareholders by mutual funds, like other corporate entities, is technically a dividend, explains Joel Dickson, a principal and tax specialist at Vanguard Group in Malvern, Pa. But even so, the income passed along by a mutual fund retains its original character for tax purposes.