Ordinary dividends are taxed as ordinary income at your regular tax rate

When you receive an ordinary dividend from a stock or mutual fund, the IRS taxes it the same way it taxes your wages or salary. You pay your regular income tax rate on the full amount—whether that rate is 10%, 22%, 24%, or higher, depending on your total income for the year. This is different from may have access to dividends, which get a lower tax rate, but ordinary dividends do not receive that break.

The company or fund that pays you the dividend reports it to the IRS on a Form 1099-DIV, and you report the same amount on your tax return. You cannot avoid the tax by not reporting it—the IRS already knows about it.

Key Takeaways

  • Ordinary dividends are taxed at your full ordinary income tax rate, which ranges from 10% to 37% depending on your income bracket.
  • The payer reports ordinary dividends to the IRS on Form 1099-DIV, and you must report them on your tax return even if you do not receive a form.
  • may have access to dividends receive preferential tax rates (0%, 15%, or 20%), but most dividends from money market funds, bonds, and preferred stocks are ordinary dividends.
  • Reinvested dividends—those automatically bought back into shares—are still taxable in the year they are paid, not when you sell the shares.

What counts as an ordinary dividend

An ordinary dividend is any dividend payment that does not meet the IRS definition of a may have access to dividend. Most dividends fall into this category. Dividends from money market funds are ordinary. Dividends from bonds and bond funds are ordinary. Dividends from preferred stocks are ordinary. Dividends from real estate investment trusts (REITs) are ordinary. If you receive a dividend from a mutual fund and the fund itself received ordinary income or short-term capital gains, those are passed through to you as ordinary dividends.

The key difference is how long you held the stock. To be a may have access to dividend, you must have owned the stock for more than 60 days during the 121-day window centered on the ex-dividend date. If you do not meet that holding period, or if the stock is not may be able to access (like a REIT), the dividend is ordinary.

Your brokerage or mutual fund company will tell you on the 1099-DIV which dividends are ordinary and which are may have access to. Do not guess—use the numbers they report.

How ordinary dividends appear on your tax return

You report ordinary dividends on Form 1040, Schedule 1 (or Schedule B if you have more than $1,500 in dividends). You list the total amount of ordinary dividends from all sources and add it to your other income. This total is then subject to your ordinary income tax rate for the year.

If you received dividends from multiple sources—a brokerage account, a mutual fund, a DRIP (dividend reinvestment plan)—you add them all together. The IRS does not care where the money came from; it all counts as income.

You do not need to file the 1099-DIV itself with your return, but you should keep it for your records. The IRS matches the 1099-DIV your broker sent to them with the amount you report on your return, so the numbers must match.

The difference between ordinary and may have access to dividends

may have access to dividends receive preferential tax rates: 0%, 15%, or 20%, depending on your income level. Ordinary dividends do not. If you are in the 24% tax bracket and receive $1,000 in ordinary dividends, you owe $240 in federal tax. If those same $1,000 were may have access to dividends, you would owe $150 (at the 15% rate). That is a real difference in your tax bill.

The IRS publishes the income thresholds for may have access to dividend rates each year. For 2024, the 0% rate applies to single filers with income up to $47,025 and married filers filing jointly up to $94,050. The 15% rate applies to income above that threshold but below the top bracket. The 20% rate applies to the highest earners.

Because ordinary dividends do not may have access to for these lower rates, they cost you more in tax. This is why investors sometimes pay attention to whether a fund pays may have access to or ordinary dividends—it affects the after-tax return.

Reinvested dividends are taxable in the year they are paid

If you own shares in a mutual fund or have set up a DRIP (dividend reinvestment plan) with a stock, your dividends are automatically used to buy more shares instead of being paid to you in cash. This does not change the tax treatment. You still owe tax on the full dividend amount in the year it is paid, even though you never saw the cash.

The fund or company will still report the dividend on a 1099-DIV, and you must report it on your tax return. When you eventually sell those reinvested shares, you will owe capital gains tax on the profit (the difference between what you paid and what you sold for). This means reinvested dividends can create a tax bill in the year they are paid, even if you do not have the cash to cover it.

Keep careful records of reinvested dividends. They increase your cost basis in the shares, which reduces your capital gain when you sell. If you lose track of them, you may overpay capital gains tax later.

State and local taxes on ordinary dividends

In addition to federal income tax, you may owe state or local tax on ordinary dividends. Most states tax dividends as ordinary income at the same rate they tax wages. A few states—including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—do not have a state income tax at all, so you owe no state tax on dividends there.

Some states offer preferential rates for may have access to dividends, similar to the federal system, but the thresholds and rates vary. Check your state's tax agency website or your state tax return instructions to see how dividends are taxed where you live.

If you live in one state but earned dividends from stocks in another state, you generally owe tax only to your state of residence, not to the state where the company is incorporated.

Frequently Asked Questions

Do I owe tax on dividends if I reinvest them instead of taking the cash?

Yes. Reinvested dividends are taxable in the year they are paid, even though you never received the money. The fund or company reports them on a 1099-DIV, and you must report them on your tax return. You will owe tax on the full amount, which is why some investors keep cash reserves to cover the tax bill.

What if I did not receive a 1099-DIV for my dividends?

Contact your broker or the company that paid the dividend and ask for a corrected form. You are still required to report the dividends on your tax return even if you do not have the form. The IRS has a copy, and if your return does not match, you may face penalties or interest.

Are dividends from my 401(k) or IRA taxed differently?

No. Dividends inside a 401(k) or traditional IRA are not taxed in the year they are paid. You pay tax only when you withdraw money from the account. In a Roth IRA, may have access to dividends are never taxed. But dividends in a regular taxable brokerage account are always taxed in the year paid, regardless of whether you reinvest them.

Can I deduct investment losses to offset dividend income?

Yes, but only up to a limit. You can deduct capital losses against capital gains, and any remaining loss up to $3,000 against ordinary income (including dividends). Losses beyond that carry forward to future years. Keep records of all sales to track your losses.

What is the difference between a dividend and a capital gain?

A dividend is a payment made by a company to shareholders from its profits. A capital gain is the profit you make when you sell a stock for more than you paid for it. Both are taxable, but they are taxed differently—dividends as ordinary income (or at may have access to rates), and capital gains at preferential long-term rates if you held the stock more than a year.