If I short sell a stock XYZ to Buyer B and I am short the stock on the ex-dividend date, I pay the lender the dividend. The dividend tax rate is 20%.

Does the lender have to pay the dividend tax on the dividend that I pay them, even though the company pays Buyer B the dividend for the borrowed shares I sold? And Buyer B pays the 20% dividend tax on their dividend as well?

Am I correct in thinking that two dividends are being paid but the company is paying only the one dividend to Buyer B and I am paying the lender the gross dividend too?


There are 3 people (A, B, and C). B borrows the stock from A and sells it to C

A owns the stock in book entry form

B is short the shares

C owns the actual shares

No new shares have been created in this process. However, a new long position and a new short position have been created.

In the USA, if a dividend occurs, C receives the dividend from the company and A receives a payment-in-lieu from B, the short seller. A drawback is if the lender was due a qualified dividend, he loses that status and the payment-in-lieu is taxed at the higher regular income tax rate.

  • Thank you! I have been stuck on the "payment-in-lieu" part for quite a while. This has perfectly answered my question and shorted out my confusion. Thanks! Dec 5 '20 at 18:38

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.