Dividends are taxed differently depending on how long you hold the stock and what type of dividend it is

The tax you owe on dividends depends on two things: whether they are may have access to dividends or ordinary dividends, and your income tax bracket. may have access to dividends get a lower tax rate — the same rate as long-term capital gains. Ordinary dividends are taxed as regular income at your full tax rate. Most dividends from U.S. companies are may have access to if you hold the stock for at least 60 days around the payment date.

Your brokerage will report dividends to you on a Form 1099-DIV each January. This form tells you how much you received and what type it was. You then report those amounts on your tax return. The IRS does not withhold tax automatically unless you ask, so you may owe money at tax time even though you did not see it taken from a paycheck.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your income bracket, while ordinary dividends are taxed at your regular income tax rate of 10% to 37%.
  • To may have access to for the lower rate, you must hold the stock for at least 60 days within a 121-day window centered on the dividend payment date.
  • Your brokerage reports all dividends on Form 1099-DIV, which you receive by January 31 and must report on your tax return.
  • Dividends from foreign companies, real estate investment trusts (REITs), and certain other sources are usually taxed as ordinary income even if they come from stocks you hold long-term.

may have access to dividends versus ordinary dividends

may have access to dividends are paid by U.S. corporations or certain foreign corporations and taxed at the capital gains rate for your bracket. If your income is under $47,025 (single) or $94,050 (married filing jointly) in 2024, may have access to dividends are taxed at 0%. Between those thresholds and $518,900 (single) or $583,750 (married), they are taxed at 15%. Above those amounts, the rate is 20%. These brackets change each year.

Ordinary dividends are taxed as regular income using the standard tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on how much you earn. This includes dividends from REITs, master limited partnerships, preferred stock in some cases, and most foreign stocks. Even if you hold the stock for years, these dividends do not get the lower capital gains rate.

Your brokerage will label each dividend as may have access to or ordinary on Form 1099-DIV. If you are unsure whether a specific holding pays may have access to or ordinary dividends, check the fund prospectus or call the company's investor relations line.

The holding period rule for may have access to dividends

To get the lower tax rate, you must own the stock for at least 60 days during a 121-day period that starts 60 days before the ex-dividend date. The ex-dividend date is the cutoff — if you buy on or after that date, you do not receive the dividend at all. If you buy before it and sell shortly after, you may lose the may have access to status.

The IRS counts the holding period strictly. If you buy on day 1 and sell on day 60, you have held it for 60 days. If you sell on day 59, you have held it for 59 days and do not meet the rule. The 121-day window exists to prevent people from buying a stock just before the dividend and selling right after.

This rule does not explore if you held the stock at a loss during the holding period or if you used options to hedge your position. If either happened, the dividend is taxed as ordinary income. Keep records of your purchase and sale dates for each holding.

How to report dividends on your tax return

You report dividends on Schedule B (Interest and Ordinary Dividends) if your ordinary dividends are over $1,500, or on Schedule 1 (Additional Income) if they are $1,500 or less. may have access to dividends go on Schedule D (Capital Gains and Losses) along with your long-term capital gains. If you use tax software, it usually fills these in automatically once you enter the Form 1099-DIV information.

You must report all dividends, even small ones. If your brokerage sends you a Form 1099-DIV, the IRS receives a copy too. Leaving dividends off your return triggers a mismatch notice and can result in penalties and interest.

If you received dividends but no Form 1099-DIV by February 15, contact your brokerage. If you still do not receive it by tax day, you can report the dividends based on your own records and note that the form was not received.

Dividends in retirement accounts and taxable accounts

Dividends in traditional IRAs, Roth IRAs, and 401(k)s are not taxed when you receive them. You pay tax only when you withdraw the money — and only on the amount you withdraw. This means dividends can compound without being reduced by annual taxes. In a Roth IRA, may have access to withdrawals are not taxed at all.

Dividends in a taxable brokerage account are taxed in the year you receive them, even if you reinvest them. Many brokerages offer dividend reinvestment plans (DRIPs) that automatically buy more shares with your dividends, but this does not change when you owe tax. You still report the dividend as income on your tax return.

If you are deciding where to hold dividend-paying stocks, consider putting high-dividend investments like REITs and bond funds in retirement accounts where the tax is deferred, and holding growth stocks or may have access to-dividend stocks in taxable accounts.

Special cases: REITs, foreign dividends, and mutual funds

Real estate investment trusts (REITs) must distribute at least 90% of their taxable income to shareholders. These distributions are almost always taxed as ordinary income, not may have access to dividends, even though you hold the REIT for years. Some REIT dividends may be partially taxed as return of capital, which reduces your cost basis instead of being taxed when ready — your Form 1099-DIV will break this out.

Foreign dividends from stocks you own directly are usually taxed as ordinary income in the United States. Some countries withhold tax at the source (often 15% to 30%), and you may be able to claim a foreign tax credit on your return to avoid double taxation. If you own foreign stocks through a U.S. mutual fund or ETF, the fund handles this, and you report what the fund reports on your 1099-DIV.

Mutual funds and ETFs that pay dividends report them to you on Form 1099-DIV, labeled as may have access to or ordinary. The fund itself does not pay tax; you do. If a fund holds both may have access to and ordinary dividends, it splits the payment between the two categories on your form.

Tax withholding and estimated payments

Your brokerage does not automatically withhold tax from dividends unless you request it. This means you receive the full dividend amount, but you owe tax on it at the end of the year. If you have a large amount of dividend income and do not have enough tax withheld from a paycheck, you may owe a penalty for underpayment.

You can ask your brokerage to withhold a percentage of your dividends for taxes. This is optional and does not change what you owe — it just spreads the payment throughout the year instead of all at once. Some people choose 10%, 20%, or 25% withholding depending on their tax bracket.

If you expect to owe more than $1,000 in taxes for the year, consider making quarterly estimated tax payments to the IRS. This is especially important if dividends are your main source of income or if you are self-employed.

Frequently Asked Questions

Do I have to report dividends under $600?

Yes. The IRS requires you to report all dividend income, regardless of amount. Your brokerage may not send a Form 1099-DIV if dividends are under $10, but you still owe tax on them. Keep your own records of all dividends received.

What happens if I sell a stock right after the dividend payment?

If you sell after the ex-dividend date, you still receive the dividend and owe tax on it. However, if you sell before the ex-dividend date, you do not receive the dividend at all. If you held the stock for less than 60 days during the 121-day window, the dividend is taxed as ordinary income instead of at the may have access to rate.

Can I deduct dividend losses?

No. Dividends are income, not losses. However, if you sell a stock at a loss, you can deduct that capital loss against capital gains or up to $3,000 of ordinary income per year. Unused losses carry forward to future years.

Are stock dividends taxed differently than cash dividends?

Stock dividends (where the company gives you additional shares instead of cash) are usually not taxed when you receive them. You pay tax only when you sell those shares. However, some stock dividends are taxable when ready — your Form 1099-DIV will tell you which type you received.

What if I inherited stock that pays dividends?

Dividends you receive after inheriting stock are taxed the same way as any other dividends — may have access to or ordinary depending on the type. You do not inherit the original holding period, so the 60-day rule starts fresh from the date you inherited it.