Below is a list of tax-related frequently asked questions. Please select a category, then select a question. For additional information and FAQs, along with IRS forms, instructions and publications, visit the IRS website.
Most tax forms (including Composite Form 1099) will be available online by February 10, 2016. For a complete list of tax forms and when they will be available, please view our Tax Calendar. Form 5498 will be available by May 25, 2016, and Form 5498-ESA will be available by April 26, 2016.
Below is a summary of the tax forms you may receive:
Visit our Tax Calendar to find out when these forms will be available.
A Composite Form 1099 is a consolidated tax form that reports both Form 1099-DIV and Form 1099-B tax information for eligible accounts. A separate form will be generated for each fund account.
Form 1099-DIV, Dividends and Distributions, is the federal tax information form used to report total ordinary (taxable and tax-exempt interest) dividends, including distributions of net short-term capital gain and total capital gain distributions paid to your fund accounts during the year. Form 1099-DIV is also used to report qualified dividends, unrecaptured Section 1250 gain, nondividend distributions (return of capital), federal income tax withheld (backup withholding), foreign tax paid, foreign source income and any specified private activity bond interest.
This information will be included in Composite Form 1099.
You will receive Form 1099-DIV reporting information on Composite Form 1099 if you received $10 or more in dividends or other distributions from your fund during the calendar year. Franklin Templeton is not required to report (and does not report) taxable and tax-exempt interest dividends and distributions received on your accounts in an amount of less than $10 unless backup withholding was withheld or the fund has elected to pass through foreign tax to shareholders.
Although Franklin Templeton is not required to report an amount under $10, you are generally required to report all dividends and distributions on your income tax returns. Any amount not reported on Form 1099-DIV can be found on your year-end Asset Summary Statement.
Yes. Distributions made to you, that Franklin Templeton is required to report to the IRS shortly after the close of year, are reported under the taxpayer identification number you provided on your account(s). A separate Composite Form 1099 is generated for each account you own.
You could also receive more than one Form 1099-DIV per account if:
If you receive Form 1099-DIV that includes income attributable to other taxpayers with different taxpayer identification numbers, you may need to follow the IRS guidelines for nominees. Please refer to the Instructions for Form 1040, U.S. Individual Income Tax Return, Schedule B, Interest and Ordinary Dividends.
IRS forms, instructions and publications can be obtained free of charge by calling the IRS at (800) 829-1040. You may also view these materials on the IRS website.
Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, is the federal tax information form used to report gross proceeds, less any contingent deferred sales charge (CDSC), received from sales or exchanges of fund shares in non-retirement accounts during the year. Form 1099-B reports the date of sale or exchange, and federal income tax withheld (if any). The form also reports cost basis information, including date of acquisition, type of gain or loss, cost or other basis, wash sale adjustments for eligible accounts, and whether basis information was reported to the IRS. A separate 1099-B form will be generated for each fund account with qualifying transactions.
This information is included on Composite Form 1099.
Whenever you sell or exchange shares of a Franklin Templeton fund, you will generally recognize a taxable capital gain or loss. The proceeds from these transactions are reported to you on Form 1099-B, along with the cost basis of eligible shares. These transactions must be reported on IRS Form 1040, U.S. Individual Income Tax Return, Schedule D, Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets.
Additional information on reporting gains and losses, including cost basis information for applicable accounts, can be obtained from IRS Publication 551, Basis of Assets.
The cost basis of mutual fund shares is generally the amount paid for the shares when they were initially purchased, including any sales charges paid on the purchase of the shares. Your cost basis may be subsequently adjusted for wash sales, deferred sales charges and other items. When these shares are sold or exchanged, you may have a gain or a loss on that transaction, and you may have to pay taxes on any gains earned from the transaction. The capital gain or loss equals the amount realized on the sale minus the cost basis of the shares sold and must be reported to the IRS on your tax return.
In short, cost basis is used to determine capital gains and losses for tax purposes when mutual fund shares are sold or exchanged. There are two methods that Franklin Templeton offers for calculating cost basis (specific share identification and average cost), and investors may choose the method they feel is most appropriate given their personal tax situation.
Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530), is the federal tax information form used to report payments from qualified education programs, which include Qualified Tuition Programs (QTPs), commonly known as 529 plans, and Coverdell Education Savings Accounts (CESAs).
Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., is the federal tax information form used to report distributions made to you from your retirement account(s).
Form 5498, IRA Contribution Information, is the federal tax information form used to report contributions, conversions, re-characterizations and rollovers to IRAs, Roth IRAs, SEP IRAs and Simple IRAs. It also reports year-end market values and required minimum distribution (RMD) information. If no contributions are made during the calendar year, a Form 5498 will not be generated. In that case, year-end market values and RMD information can be found on the year-end Asset Summary Statement.
Form 5498-ESA, Coverdell ESA Contribution Information, is the federal information form used to report contributions to the Coverdell ESA made throughout the calendar year and from January 1 through April 15 of the next year. Form 5498-ESA also is used to report any rollover, including a direct rollover, made in the calendar year.
Form 1042-S reports gross distributions of ordinary income dividends (including short-term capital gain and interest-related dividends) and other distributions from long-term capital gains, gains from U.S. real property interests and return of capital that are paid during the year to beneficial owners or other payees who are either nonresident alien individuals or foreign entities. The form also reports any NRA withholding applied to foreign accounts. Foreign entities include foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, international organizations and qualified intermediaries.
Form 1042-S reports information relating to the Foreign Account Tax Compliance Act (FATCA) for foreign entities, including the entity’s Global Intermediary Identification Number (GIIN), Chapter 4 status, Foreign Tax Identification Number (FTIN) and any FATCA withholding applicable under Chapter 4 of the U.S. Internal Revenue Code (Code).
Box 1: The income code is a two-digit numerical code used by the U.S. Internal Revenue Service (IRS) to identify the type of income paid by the fund and reported in Box 2. The fund may use one or more of the following income codes: ordinary income dividends, interest-related dividends and gains from U.S. real property interests (06), short-term capital gain dividends (36), capital gain dividends (distributions from long-term capital gains) (36), return of capital distributions (37), tax exempt-interest dividends (01), and dividends paid on certain actively traded or publically offered securities (52). Distributions from retirement plans are reported under code 14.
Box 2: Gross income represents the amount of income paid by the fund that is described by the income code in Box 1. Federal tax withheld, as reported in Box 7, if any, is included in the amount reported in Box 2.
Box 3: An X in this box indicates that U.S. withholding tax has been deducted under Chapter 3 of the Code. If there is no withholding reported in Box 7, Box 3 will be checked per IRS instructions.
Box 3a: The exemption code is a two-digit numerical code used by the IRS to identify the authority for an exemption from U.S. withholding tax under Chapter 3 of the Code. If the withholding tax rate entered in Box 3b is 0%, the appropriate exemption code will be reported in Box 3a. For example, exemption code 02 is used for fund distributions that are exempt from withholding under current U.S. tax law. If a withholding amount is reported in Box 7, exemption code 00 will appear in Box 3a.
Box 3b: The U.S. withholding tax rate under Chapter 3 of the Code is generally 30%, unless the income is exempt from withholding, or is subject to a lower rate of tax based on a tax treaty between the U.S. and your country of residence. The rate is 0% if the gross income reported in Box 2 is exempt from withholding. If your fund is a qualified investment entity for purposes of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), the withholding tax rate is 30%, or a lower treaty rate, on gains from dispositions of U.S. real property interests for foreign shareholders owning not more than 5% of a fund.
Box 4: An X in this box indicates that U.S. withholding tax has been deducted under Chapter 4 of the Code (FATCA withholding). Chapter 4 refers to the Foreign Account Tax Compliance Act (FATCA).
Box 4a: The exemption code is a two-digit IRS numerical code used by the IRS to identify the authority for an exemption from U.S. withholding tax under Chapter 4 of the Code. If the rate entered in Box 4b is 0%, the appropriate exemption code will be reported in Box 4a. For example, exemption code 15 is used when the payee is not subject to Chapter 4 withholding because the payee has certified on Form W-8 that it has registered as FATCA compliant on the IRS FATCA Registration System or that it is otherwise subject to an exemption from Chapter 4 withholding. If a withholding amount is reported in Box 7, exemption code 00 will appear in Box 4a.
Box 4b: The U.S. withholding tax rate under Chapter 4 of the Code is generally 30%, unless the income is exempt from withholding, and may not be reduced to a lower rate by a tax treaty. The rate is 0% if the gross income reported in Box 2 is exempt from withholding.
Box 7: Federal tax withheld represents the total amount of U.S. federal tax withheld by the fund under Chapter 3 or 4 of the Code, if any, from the distributions paid by the fund during the calendar year, as reported in Box 2. The tax withheld is included in the gross income amount reported in Box 2.
Box 10: Reports the total amount of U.S. tax withheld by all withholding agents, including the fund.
Box 13b: The recipient code is a two-digit numerical code used by the IRS to identify the type of recipient for Chapter 3 purposes that received a fund distribution.
Box 13c: The recipient code is a two-digit numerical code used by the IRS to identify the type of recipient for Chapter 4 purposes that received a fund distribution.
Box 13e: The country code is a two-letter code used by the IRS to identify the country in which the recipient claims residency under that country’s tax laws.
Box 13h: If the recipient is a participating FFI, registered-deemed compliant FFI, or other entity required to register on the IRS FATCA Registration System (webportal) and has obtained a Global Intermediary Identification Number (GIIN), the GIIN will be reported in Box 17.
Box 13i: If the recipient provided a Foreign Tax Identification Number (FTIN) to the fund, this number will be reported in Box 18.
Box 16: The recipient account number is the account number assigned to your account by Franklin Templeton Investments.
Tax certifications of foreign individuals
As a general rule, foreign persons are subject to NRA withholding at 30 percent of the treaty rate for the shareholder's country of residence. However, under U.S. Treasury regulations, unless a foreign individual has furnished the tax certifications required on the appropriate IRS Form W-8, the fund is generally required to apply backup withholding at 28% on all ordinary income dividends (including short-term capital gains and interest-related dividends), long-term capital gain distributions, tax-exempt interest dividends and gross redemption proceeds. Backup withholding is not an additional tax and any amounts withheld may be credited against the shareholder’s U.S. tax liability by providing the appropriate information to the IRS. The fund cannot generally refund backup withholding to shareholders.
If your account was subject to backup withholding in 2014, you will also receive a Form 1099-DIV, and, if applicable, Form 1099-B, each of which would reflect any amounts withheld.
Please refer to IRS Publication 519, U.S. Tax Guide for Aliens, and the 2014 IRS tax form instructions for additional information on U.S. income tax requirements. You can download IRS publications and forms from the IRS website. Please consult a tax advisor for guidance regarding your individual tax situation.
Yes, but only for distributions from certain retirement accounts with Fiduciary Trust International of the South (FTIOS) as the custodian.
Yes. For certain FTIOS retirement accounts, state tax may be withheld from a distribution if you reside in one of the following states:
If you reside in a state that is not listed above, only federal taxes may be withheld from your distribution.
Obligations issued by the U.S. government such as Treasury bills, U.S. savings bonds and U.S. agency obligations are known as direct U.S. government obligations.
Foreign source income is income earned by the fund from its investments in foreign securities. A shareholder’s foreign source income is the shareholder’s portion of the foreign source income earned by the fund.
Shareholders with foreign taxes reported in Box 6 of Form 1099-DIV, may be eligible to claim this amount as a foreign tax credit or deduction on their federal income tax returns.
To choose the credit, an individual shareholder may have two options:
Please see “Do I qualify for the Simplified Reporting Method?” below for more information. The instructions for Form 1116, Foreign Tax Credit, and IRS Publication 514, Foreign Tax Credit for Individuals, also provide additional information on this subject. Please consult your tax advisor for any additional information and for the appropriate treatment in your case.
If you are an individual shareholder, you may claim the foreign tax credit without filing Form 1116 if you meet certain conditions including:
If you qualify for the Simplified Reporting Method, you may claim your foreign tax credit directly on Form 1040, without regard to the foreign tax credit limitation and without filing Form 1116.
Foreign source income is income earned by the fund from investments in foreign securities. A shareholder's foreign source income is determined by the foreign source income received by the fund, net of expenses.
The information contained in this Tax Center is not intended to be a complete discussion of all federal or state income tax requirements. This information cannot be used by an investor to avoid any income tax penalties that may be imposed under the Internal Revenue Code. Investors should seek advice from a financial and/or tax advisor about the potential tax implications of their investments in Franklin Templeton fund(s) based on their individual circumstances.
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