The short answer

What it reportsDistributions from cooperatives passed through to their patrons including any domestic production activities deduction and certain pass-through credits.
Amounts to report$10 or more
To the recipientJanuary 31
To the IRS, on paperFebruary 28
To the IRS, electronicallyMarch 31

If one arrives

Box 6 carries a deduction passed through from the co-op that regularly goes unclaimed. Most of the rest is business income if the co-op serves your trade.

The form is how a payer tells the IRS what it paid. Its absence is not permission — income you received is reportable whether or not a form covers it, and a threshold decides only who must file, never what you owe.

Who sends it

A cooperative sends it to its patrons: the members who buy from it or sell through it. The instructions require one "for each person to whom the cooperative has paid at least $10 in patronage dividends and other distributions." A co-op that mainly sells goods or services for its members' personal, living or family use can apply to be exempt from filing, on Form 3491.

A patronage dividend is a share of the co-op's margin paid back to members in proportion to the business each did with it. It is different from a dividend on the co-op's own shares, which goes on Form 1099-DIV.

Whether it is income

For a farmer, a patronage dividend is usually farm income on Schedule F, lines 3a and 3b. But the rule turns on what the purchase was, not on the form:

The dividend came from How it is treated
Selling your crop or livestock through the co-op, or buying feed, seed and other supplies Income on Schedule F
Buying personal or family items, such as fuel for personal use Not income
Buying equipment or other depreciable property, or a capital asset Not income. It reduces the property's basis instead
Something you cannot identify Income on Schedule F

The basis rule is the one people miss. Publication 225's example: a dairy farmer bought a machine from the co-op for $12,900 and later received a $300 patronage dividend for buying it. The $300 is not income. It comes off the machine's basis, and the depreciation for the following years is figured on the lower amount.

Cash and paper

A co-op may pay part of a dividend as a written notice of allocation rather than cash. A qualified notice, one where at least 20% of the dividend was paid in money or qualified check and the notice meets the other conditions, is income at its stated value when you receive it. A nonqualified notice has a basis of zero and is income only when it is redeemed or sold.

The boxes a reader meets

Box What it holds
1 Patronage dividends
2 Nonpatronage distributions, from farmers' co-ops exempt under section 521 only
3 Per-unit retain allocations
4 Federal income tax withheld under backup withholding
5 Redeemed nonqualified notices
6, 7 The section 199A(g) deduction passed through, and the qualified payments behind it
8, 9 Section 199A items, with specified service business items shown separately
10–12 Credits and deductions passed through to you

Not every box is covered here. Boxes 6 to 9 feed the qualified business income deduction: see Is my work an SSTB? for what a specified service trade or business is.

Common questions

Is a patronage dividend taxable?
It depends on what it was paid for. Publication 225: you report it as income on Schedule F for the year you receive it, but "Don't report as income any patronage dividends you receive from expenditures that weren't deductible, such as buying personal or family items, capital assets, or depreciable property."
The co-op paid a dividend on a tractor I bought through it. What do I do?
You do not report it as income. You reduce the tractor's basis by the dividend, which lowers the depreciation still to come. If the dividend is more than the basis left, the difference goes on Schedule F.
I cannot tell what the dividend was for. Where does it go?
Publication 225: "If you can't determine what the dividend is for, report it as income on Schedule F, lines 3a and 3b."
Why is some of my allocation on paper rather than in cash?
Co-ops often pay part of a patronage dividend as a written notice of allocation. A qualified notice counts as income at its stated value in the year you receive it. A nonqualified notice does not; you report what you are paid when it is redeemed.
My co-op's dividends on its shares came on a 1099-DIV. Is that right?
Yes. The instructions: "Report dividends paid on a cooperative's capital stock on Form 1099-DIV." Form 1099-PATR is only for amounts passed through to patrons on the business they did with the co-op.

This page is for educational purposes only and does not constitute tax, legal, or financial advice. It covers United States federal reporting. Consult a qualified tax professional about your situation.

Official sources