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Annual Credit for Substitute Payments

If you received substitute payments in lieu of dividends, you may be eligible for our annual credit adjustment.

If shares were lent from your margin account during a period in which they would have earned dividends, you'll receive substitute payments to help make up for the lost income.

However, unlike dividends, these substitute payments are taxed as regular income, with a tax rate as high as 39.6%. To help cover this additional expense, we offer the annual credit.*

Who qualifies for the annual credit

You may be eligible to receive the annual credit if:*

  • You are a U.S. citizen or permanent resident.
  • You received the substitute payment in an account registered as individual, joint, trust, estate, or "pass-through" entity type (partnership, LLC, LLP, etc.).
  • You would have reported the dividend as a qualified dividend had the security not been on loan. (In general, you will be able to satisfy this requirement if the applicable security is from either a domestic or qualified foreign corporation, and would have been held unhedged for the period required for qualified dividends.)

When you’ll receive your credit payments

Credits are paid between March and May of the following calendar year, or as soon as all reclassification information is available. Please note, in order to receive your credit, your account, or a qualified substitute, must be open.

How we calculate your credit

In general, your credit will be approximately 32.45% of your total substitute payments. For example, if you received $100 in substitute payments for the entire year, your annual credit adjustment will be $32.45.

We base this percentage on a number of factors. For instance, we assume your substitute payment will be taxed at the highest federal tax rate (39.6%) and then make further adjustments to account for any taxes the annual credit may incur.

Where to find credits and substitute payments on your tax return

We list substitute payments on line 8 and annual credits on line 3 of Form 1099-MISC.

When filing your federal tax return, we recommend listing the credits as "other income." For additional help on how to report credits or substitute payments, please consult your tax advisor.

Additional resources

Retirement Accounts and Taxes
Learn how deductible contributions and taxable withdrawals may affect your federal income tax return.

Help with cost basis

* The annual credit adjustment program is not guaranteed to remain in effect indefinitely, and Fidelity reserves the right to amend or terminate the program.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Before using this information, review important legal information and terms of use applicable to products, services, and/or information provided or accessed herein by the following companies:

GainsKeeper®
The use of GainsKeeper branded products is governed by Wolters Kluwer Financial Services (Wolters Kluwer) applicable license agreements. GainsKeeper and the GainsKeeper logo are registered trademarks and/or service marks of Wolters Kluwer. Wolters Kluwer is not affiliated with Fidelity Brokerage Services (FBS) or their affiliates. Wolters Kluwer is solely responsible for the information, content and software products provided by it. Fidelity does not explicitly or implicitly endorse or approve such information, content or products. Fidelity cannot guarantee that such information and content supplied is accurate, complete, or timely, or that the software products provided produce accurate and/or complete results. Fidelity does not make any warranties with regard to the information, content or software products or the results obtained by their use. Fidelity disclaims any liability arising out of your use (or the results obtained from, interpretations made as a result of, or any tax position taken in reliance on information provided pursuant to, your use) of these Wolters Kluwer software products or the information or content furnished by Wolters Kluwer.

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