WMS

What potential tax implications should investors consider with the quarterly cash dividend?

Created August 07, 2025 at 10:47 AM

Key tax points investors should keep in mind when receiving the $0.18 quarterly cash dividend from Advanced Drainage Systems (NYSE: WMS)

Tax Issue	What it means for you	Why it matters
1. Dividend type – qualified vs. non‑qualified	• The $0.18 per share is a cash dividend. For U.S. investors it will be treated as a qualified dividend only if the company’s stock satisfies the “holding‑period” test (you must have held the shares for more than 60 days during the 121‑day period that begins 60 days before the dividend‑record date). If you meet this test, the dividend is taxed at the reduced qualified‑dividend rates (0%, 10% or 15% for most taxpayers, depending on your ordinary income tax bracket). • If you do not meet the holding‑period requirement, the dividend is non‑qualified (ordinary) and is taxed at your regular marginal income‑tax rate.	Qualified dividends get a lower tax rate than ordinary income, so the longer you hold the shares the more tax‑efficient the payout becomes.
2. Timing of tax liability	• The dividend is taxable in the calendar year in which it is paid (the August 7, 2025 press release indicates the first payment will be made in Q3 2025). You will receive a Form 1099‑DIV from the broker at the beginning of 2026 reporting the total amount you received in 2025. • If you receive the dividend in a tax‑advantaged account (e.g., a traditional IRA, Roth IRA, 401(k) or a Health‑Savings Account), the dividend is not reported on a 1099‑DIV and is either tax‑deferred (traditional) or tax‑free (Roth) – you do not incur a current‑year tax liability.	The tax event occurs the moment the cash is credited to your account, not when you later reinvest it. Knowing the calendar‑year impact helps you plan cash flow and estimate your 2025 tax bill.
3. State and local income tax	• Most states treat dividend income the same way as federal – it is included in state taxable income. If you live in a state with a high personal‑income tax (e.g., CA, NY, NJ) the dividend will increase your state tax liability. • Some states (e.g., Tennessee, New Hampshire) do not tax dividend income, which could lower the overall tax burden.	State tax rates can add a significant amount to the effective tax on the dividend, especially for high‑income investors.
4. Impact on your tax bracket	• Because the dividend adds to your adjusted gross income (AGI), a large enough dividend could push you into a higher marginal tax bracket for the year, increasing the tax rate applied to the dividend and to other income. The $0.18 per share is modest, but if you own a large position (e.g., 10,000 shares → $1,800 per quarter, $7,200 annually) it could be material.	Understanding the bracket effect helps you anticipate whether the dividend will be taxed at 10%, 12%, 22%, etc., and whether you might benefit from tax‑planning strategies (e.g., charitable contributions, deductions).
5. Withholding for non‑U.S. investors	• Foreign shareholders are subject to a 30% statutory withholding tax on U.S. dividends unless a tax treaty reduces the rate (many treaties lower it to 15%). The dividend is reported on Form 1042‑S. • If you hold the shares through a foreign‑registered broker that does not automatically apply treaty benefits, you may receive the full 30% withholding.	Non‑U.S. investors must consider the net after‑withholding amount and may need to file a U.S. tax return to claim a refund if the treaty rate is lower.
6. Potential impact on capital‑gain basis	• Cash dividends do not affect the cost basis of your shares. Your basis remains the price you paid for the shares, so when you eventually sell the stock you will still calculate capital gains/losses on that original cost. • However, if you reinvest the dividend via a dividend‑reinvestment plan (DRIP), each reinvested purchase creates a new lot with its own cost basis and holding date, which must be tracked for future capital‑gain calculations.	Proper basis tracking is essential to avoid over‑ or under‑paying capital‑gain tax when you sell.
7. Alternative Minimum Tax (AMT) considerations	• For most individual taxpayers the dividend itself does not trigger AMT. It only becomes relevant if you have large amounts of adjustments (e.g., exercising incentive stock options) that already place you near the AMT threshold.	If you are already AMT‑exposed, the additional ordinary income from non‑qualified dividends could increase your AMT liability.
8. Reporting on tax‑return	• Form 1040, Schedule B – list the total ordinary and qualified dividend amounts. The broker’s 1099‑DIV will break out the qualified portion (if any). • Schedule D – only needed when you sell the shares; the dividend does not affect this schedule directly.	Accurate reporting prevents IRS mismatches and potential penalties.
9. Interaction with the Net Investment Income Tax (NIIT)	• If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly), you are subject to the 3.8% NIIT on net investment income, which includes dividends. The $0.18 dividend will be part of the calculation.	High‑income investors must factor NIIT when estimating the true after‑tax yield of the dividend.
10. Tax‑loss harvesting opportunities	• If you have loss‑making positions in other securities, you can offset dividend income with realized capital losses (up to $3,000 of net capital loss can offset ordinary income, including non‑qualified dividends). • This strategy can reduce the net tax you owe on the dividend.	Using capital‑loss carryovers can improve the after‑tax return of the dividend.

Practical Take‑aways for an Investor Holding ADS (WMS)

Confirm your holding period – If you have owned the shares for >60 days around the record date, the dividend will likely be qualified and taxed at the lower qualified‑dividend rates.
Estimate the tax hit –
- Example: 10,000 shares → $1,800 per quarter → $7,200 in 2025.
- If qualified and you’re in the 22% marginal bracket, the federal tax would be roughly $1,584 (22% of $7,200).
- If non‑qualified, the same 22% bracket applies, but you lose the benefit of the qualified‑dividend rate (which could be 10% for many taxpayers).
Plan for state tax – Add the applicable state rate (e.g., 5% NY) to the federal estimate.
Use tax‑advantaged accounts – Holding ADS in an IRA or Roth can eliminate the current‑year tax on the dividend.
Track reinvested dividends – If you opt for a DRIP, each reinvestment creates a new cost‑basis lot that must be recorded for future capital‑gain calculations.
Foreign investors – Expect 15–30% withholding unless a treaty reduces it; file Form 1042‑S and possibly a U.S. return to claim refunds.
Consider NIIT and AMT – High‑income investors may see an extra 3.8% NIIT on the dividend; AMT‑exposed taxpayers should verify whether the dividend pushes them over the AMT threshold.
Tax‑loss harvesting – If you have other losing positions, realize those losses before year‑end to offset dividend income and lower your overall tax bill.

Bottom‑line

The $0.18 quarterly cash dividend from Advanced Drainage Systems is taxable in the year received. Whether it is taxed at the lower qualified‑dividend rates or at your ordinary marginal rate hinges on the 60‑day holding‑period rule. Investors must also account for state tax, possible foreign‑withholding, and the interaction with NIIT, AMT, and overall income brackets.

Action steps:

- Verify you meet the qualified‑dividend holding period.

- Estimate the combined federal, state, and NIIT tax on the expected dividend amount.

- If you hold the shares in a tax‑deferral or tax‑free account, the dividend is sheltered for the current year.

- Keep meticulous records of any dividend reinvestments for future capital‑gain basis calculations.

- Consult a tax professional if you have significant holdings, are subject to NIIT/AMT, or are a non‑U.S. investor.

By proactively addressing these tax considerations, you can better gauge the after‑tax yield of the ADS dividend and incorporate it accurately into your overall investment strategy.

What potential tax implications should investors consider with the quarterly cash dividend?

Practical Take‑aways for an Investor Holding ADS (WMS)

Bottom‑line

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