Taxation of credit union savings account interest

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NYCPete
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Taxation of credit union savings account interest

Post by NYCPete » Fri Dec 18, 2009 10:55 am

Hi all,

It just dawned on me today that my credit union names the interest accrued on my savings and checking accounts as "dividends." Why then would I not receive a 1099-DIV? Every year I get a 1099-INT, which means that the money yielded from my savings and checking accounts is taxed at my marginal rate instead of at the dividend rate.

Why do credit unions call the interest as dividends if they are treated as interest income?

Thanks,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

Chuck
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Post by Chuck » Fri Dec 18, 2009 11:27 am

Credit unions have different names for everything. I wonder why, too. (Share account?) I assume some legal thing about them not technically being banks.

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White Coat Investor
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Post by White Coat Investor » Fri Dec 18, 2009 12:43 pm

It might be called a dividend, but it isn't a qualified one. So it is taxed the same as interest (at your full marginal rate).
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Bob B
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Post by Bob B » Fri Dec 18, 2009 1:00 pm

This may help clear up some of the questions over naming conventions. See the third and fourth paragraphs.

http://www.waleague.org/index.php?CURRENT_PAGE_ID=1429
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NYCPete
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Post by NYCPete » Fri Dec 18, 2009 1:24 pm

Bob B wrote:This may help clear up some of the questions over naming conventions. See the third and fourth paragraphs.

http://www.waleague.org/index.php?CURRENT_PAGE_ID=1429
Wow, that article is really interesting. I've only ever been with a credit union (since I was 16) and had no idea about the difference in terminology.

Emergdoc, that's a great point that even if they are technically dividends that as long as they're not qualified they would still go on a 1099-INT.

Thanks for the responses, everyone! :)

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

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dm200
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Post by dm200 » Fri Dec 18, 2009 1:42 pm

There is a long answer and a short answer.

Short answer: BECAUSE THE IRS SAYS SO.

End of story.

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tfb
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Post by tfb » Fri Dec 18, 2009 3:10 pm

Not technical but in this credit union member's mind:

member = customer
share account = savings account
share draft account = checking account
certificate = CD
dividend = interest

Different terms. Work the same though.
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Easy Rhino
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Post by Easy Rhino » Fri Dec 18, 2009 5:50 pm

Also, money market mutual funds technically earn 'dividends' while generating 1099-INTs

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dm200
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Post by dm200 » Fri Dec 18, 2009 6:00 pm

tfb wrote:Not technical but in this credit union member's mind:

member = customer
share account = savings account
share draft account = checking account
certificate = CD
dividend = interest

Different terms. Work the same though.
No, a credit union member is not the same as a "customer". The member of the credit union owns the credit union. Banks have serving the interests of the owners (stockholders) as a basic goal, and customers come second. Credit unions have the primary goal of serving the members, who are also the owners of the credit union.

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tfb
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Post by tfb » Fri Dec 18, 2009 7:09 pm

I understand. All mutual fund shareholders are also owners, including those in the most expensive funds. Some are treated worse than bank customers though. Ownership alone does not guarantee fair treatment.
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kaneohe
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Post by kaneohe » Fri Dec 18, 2009 10:08 pm

Easy Rhino wrote:Also, money market mutual funds technically earn 'dividends' while generating 1099-INTs
ER.....not so sure this is true.....I think you get 1099-DIV for money market
funds. For bank money market accounts 1099-INT.

ruud
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Post by ruud » Fri Dec 18, 2009 10:40 pm

kaneohe wrote:
Easy Rhino wrote:Also, money market mutual funds technically earn 'dividends' while generating 1099-INTs
ER.....not so sure this is true.....I think you get 1099-DIV for money market
funds. For bank money market accounts 1099-INT.
but for tax-exempt money market funds you get a 1099-INT... go figure.

--ruud
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dm200
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Post by dm200 » Sat Dec 19, 2009 5:24 pm

tfb wrote:I understand. All mutual fund shareholders are also owners, including those in the most expensive funds. Some are treated worse than bank customers though. Ownership alone does not guarantee fair treatment.
No, I do not think this is true in general. Mutual fund shareholders own a share of the holdings of the fund, not the fund itselsf. Shareholders in Fidelity, for example, do not (I don't think) have an owership share in the buildings in Boston, or company cars, etc.

Members of credit unions actually own the credit union and its assets. Members of credit unions actuall vote for the directors (board members) of the credit union to run the credit union.

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