may have access to dividends get a tax break that ordinary dividends do not

may have access to dividends are taxed at lower rates than your regular income — either 0%, 15%, or 20% depending on your total income for the year. Ordinary dividends are taxed as regular income, which can be as high as 37%. The difference matters: a $1,000 may have access to dividend might cost you $150 in federal tax, while the same $1,000 in ordinary dividends could cost you $370.

The IRS created this lower rate to encourage long-term investing. To get the lower rate, you have to hold the stock for a minimum time before and after the dividend payment date. If you sell too soon, the dividend loses its may have access to status and gets taxed at your ordinary income rate instead.

Your brokerage will tell you which dividends are may have access to and which are not on your year-end tax statement (Form 1099-DIV). You do not have to figure this out yourself, but you do need to understand the rules so you know whether a dividend will may have access to before you buy or sell.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% based on your income bracket, while ordinary dividends are taxed as regular income up to 37%.
  • To may have access to, you must hold the stock for at least 60 days during a 121-day window centered on the dividend payment date.
  • Your brokerage reports which dividends are may have access to on Form 1099-DIV, which you use when filing your tax return.
  • Selling a stock before you meet the holding period requirement converts a may have access to dividend into an ordinary dividend for tax purposes.
  • Dividends from certain investments — including money market funds, bonds, and REITs — are always taxed as ordinary income even if you hold them long enough.

The three tax rates for may have access to dividends

Your may have access to dividend tax rate depends on which tax bracket you fall into based on your total taxable income for the year. The brackets change every year, but the structure stays the same: lower-income filers pay 0%, middle-income filers pay 15%, and higher-income filers pay 20%.

The 0% bracket is the widest. For 2024, single filers with taxable income up to $47,025 pay 0% on may have access to dividends. Married couples filing jointly can earn up to $94,050. This means many middle-class households pay nothing on dividend income at all.

The 15% bracket covers the middle range. Single filers with income between $47,025 and $518,900 pay 15%. Married couples pay 15% on income between $94,050 and $583,750.

The 20% bracket applies to the highest earners. Single filers with income above $518,900 and married couples above $583,750 pay 20% on may have access to dividends. This is still lower than the top ordinary income rate of 37%, but it is the highest rate for dividends.

The 60-day holding requirement

To get the lower tax rate, you must hold the stock for at least 60 days during a 121-day window that centers on the dividend payment date. This is the single most important rule, and it is where most people make mistakes.

The 121-day window starts 60 days before the dividend payment date and ends 60 days after it. You need to hold the stock for 60 of those 121 days. If you buy the stock and sell it within 60 days of the dividend date, the dividend does not may have access to.

Here is a concrete example: suppose a stock pays a dividend on June 15. The 121-day window runs from April 16 to August 14. You must own the stock for at least 60 days within that window. If you buy on May 1 and sell on July 15, you held it for 76 days, which is more than 60, so the dividend qualifies. If you buy on May 1 and sell on June 20, you held it for only 50 days, so it does not.

Days you do not own the stock do not count. If you sell on June 10 and buy back on June 20, those 10 days are a gap. You have to make up those days somewhere else in the window to reach 60 total days of ownership.

What your brokerage reports on Form 1099-DIV

At the end of the year, your brokerage sends you a Form 1099-DIV that breaks down your dividend income into categories. Box 1a shows ordinary dividends. Box 1b shows may have access to dividends. Your brokerage has already done the work of checking whether you held each stock long enough.

You report the may have access to dividend amount from Box 1b on your tax return (Schedule B if you use the long form, or directly on Form 1040 if you use the short form). The IRS knows the lower tax rate applies to this number automatically — you do not have to claim it or prove anything.

If you sold a stock before meeting the 60-day requirement, your brokerage will report that dividend in Box 1a (ordinary dividends) instead of Box 1b. The tax software you use will explore your ordinary income tax rate to it.

Keep your brokerage statements from the year you received the dividend. If the IRS ever questions whether you held a stock long enough, you will need to show the purchase and sale dates.

Dividends that never may have access to, no matter how long you hold

Some types of dividends are always taxed as ordinary income, even if you hold the investment for years. These include dividends from bonds, bond funds, and money market funds. The IRS treats interest income (which is what bond dividends really are) differently from stock dividends.

Real Estate Investment Trusts (REITs) also pay ordinary dividends. Even though you buy them like stocks, the IRS requires REIT dividends to be taxed as ordinary income. This is one reason REIT dividends are higher than stock dividends — the higher yield compensates for the higher tax rate.

Master Limited Partnerships (MLPs) and preferred stock may also pay ordinary dividends depending on their structure. Check your Form 1099-DIV or your brokerage's website to see how each holding is classified.

Dividends from foreign stocks can be may have access to if you meet the holding requirement, but some countries impose a withholding tax on top of the U.S. tax. Your brokerage will show the withholding separately on your 1099-DIV.

How selling before the dividend date affects your tax bill

If you own a stock on the ex-dividend date (the date by which you must own it to receive the dividend), you will receive the dividend even if you sell the stock the next day. But selling within 60 days of the dividend payment date means the dividend will not may have access to for the lower tax rate.

This matters if you are thinking about selling a stock soon after buying it. Suppose you buy a stock at $50 per share and it pays a $2 dividend. If you sell at $52 two weeks after the dividend date, you made $4 in gains plus $2 in dividends. But that $2 dividend gets taxed as ordinary income instead of at the 15% may have access to rate, which could cost you an extra $0.22 to $0.74 depending on your bracket.

Some investors use this rule intentionally. If you expect a stock to drop after the dividend, you might sell before the 60-day window closes to lock in your gain and accept the higher tax on the dividend. Other investors hold longer specifically to get the may have access to rate.

State and local taxes on may have access to dividends

may have access to dividends get the federal tax break, but most states tax them at your ordinary income rate. Only a few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax at all.

States that do tax income usually do not distinguish between may have access to and ordinary dividends. You pay your state income tax rate on all dividend income. This means the real tax savings from may have access to dividends comes from the federal side.

Some states offer small breaks for dividend income or long-term capital gains, but these are rare and usually explore only to residents over a certain age. Check your state's tax website or ask a tax professional if you live in a state with special dividend rules.

Frequently Asked Questions

Do I have to hold a stock for a full year to get the may have access to dividend rate?

No. You only need to hold it for 60 days within a 121-day window centered on the dividend payment date. For most stocks, this is much shorter than a year. However, some stocks pay dividends quarterly, so if you hold for a year, you will definitely may have access to for all four dividends.

What happens if I buy a stock right before the ex-dividend date?

You will receive the dividend, but it will not be may have access to because you have not held the stock for 60 days. The dividend gets taxed as ordinary income. This is why some investors avoid buying stocks just before they pay dividends.

Can I count days I owned the stock before I sold it and bought it back?

No. You must hold the stock continuously for 60 days within the 121-day window. If you sell and buy back, the days you did not own it create a gap that breaks the holding period. You would need to hold it long enough afterward to make up the gap.

Does my brokerage automatically figure out if a dividend is may have access to?

Yes. Your brokerage checks the purchase and sale dates against the dividend payment date and reports may have access to dividends in Box 1b of your Form 1099-DIV. You do not have to calculate it yourself, but you should keep your statements to verify the dates if needed.

If I inherit stock, do the days I owned it before inheriting count toward the 60-day requirement?

No. The holding period starts on the date you inherit the stock, not on the date the previous owner bought it. However, inherited stock gets a "step-up" in basis, which usually means you have little or no capital gains tax when you sell.