Dividends are taxed differently depending on whether they are may have access to or ordinary, and the tax rate you pay depends on your total income for the year
may have access to dividends — those paid by U.S. corporations or certain foreign corporations, held for a required holding period — are taxed at the long-term capital gains rates: 0%, 15%, or 20%, depending on your income bracket. Ordinary dividends — everything else — are taxed as regular income at your ordinary tax bracket, which can range from 10% to 37%. The difference matters: a may have access to dividend in the 22% tax bracket is taxed at 15%, while an ordinary dividend in the same bracket is taxed at 22%.
You report dividends on your tax return, and the brokerage or company paying them sends you a Form 1099-DIV by January 31 each year. The form tells you which dividends are may have access to and which are ordinary. If you own dividend-paying stocks or mutual funds, you need to know which type you received to calculate your tax bill correctly.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income; 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 around the dividend payment date, and the company must be a U.S. corporation or certain foreign corporations.
- Your brokerage sends Form 1099-DIV by January 31, which lists may have access to and ordinary dividends separately so you know which rate applies.
- Dividends reinvested through a dividend reinvestment plan (DRIP) are still taxable in the year they are paid, even though you did not receive cash.
The difference between may have access to and ordinary dividends
A may have access to dividend meets two conditions: the company paying it must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you must have owned the stock for at least 60 days during the 120-day window centered on the ex-dividend date. The ex-dividend date is the cutoff — if you buy the stock on or after that date, you do not receive the dividend.
An ordinary dividend is any dividend that does not meet these rules. This includes dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most mutual funds that pay dividends. It also includes dividends from stocks you held for fewer than 60 days, even if the company is a U.S. corporation.
The holding period rule is strict. If you buy a stock five days before the ex-dividend date and sell it five days after, you own it for only 10 days around the dividend date — too short to may have access to. The 60 days must fall within a 120-day window, so you have some flexibility, but the IRS counts calendar days, not trading days.
Tax rates for may have access to dividends
may have access to dividends are taxed at the long-term capital gains rates, which are lower than ordinary income rates. The rate you pay — 0%, 15%, or 20% — depends on your taxable income for the year, not on how long you held the stock.
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,975 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,975 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These income thresholds change each year. The IRS adjusts them for inflation, so check the current year's brackets on the IRS website or your tax software. If your total taxable income falls in the 0% bracket, your may have access to dividends are not taxed at all. If you are in the 15% bracket, may have access to dividends are taxed at 15% instead of your ordinary rate, which might be 22% or higher.
Tax rates for ordinary dividends
Ordinary dividends are taxed at your regular income tax bracket. If you are in the 24% tax bracket, ordinary dividends are taxed at 24%. If you are in the 32% bracket, they are taxed at 32%. This is the same rate that applies to wages, interest, and other ordinary income.
The ordinary income tax brackets for 2024 range from 10% to 37%, and like the capital gains brackets, they adjust for inflation each year. Because ordinary dividends are taxed at these higher rates, they can significantly increase your tax bill compared to may have access to dividends.
How to report dividends on your tax return
Your brokerage or the company paying the dividend sends you a Form 1099-DIV by January 31. This form lists the total amount of may have access to dividends in Box 1b and ordinary dividends in Box 1a. Some mutual funds and ETFs also report capital gain distributions, which are listed separately and taxed as long-term capital gains.
You report may have access to dividends on Schedule B (Interest and Ordinary Dividends) if you received more than $1,500 in interest and dividends combined, or on line 5b of Form 1040 if you received less. Ordinary dividends go on line 5a. If you use tax software, it usually imports the 1099-DIV data automatically and places the amounts in the correct boxes.
Keep your 1099-DIV forms with your tax records. The IRS receives a copy, so the amounts must match what you report. If you lose the form, you can request a duplicate from your brokerage.
Dividends from mutual funds and ETFs
Mutual funds and exchange-traded funds (ETFs) that hold dividend-paying stocks pass those dividends to you. The fund reports what portion is may have access to and what portion is ordinary on your 1099-DIV. A fund might report 60% may have access to dividends and 40% ordinary dividends, depending on the stocks it holds and how long it held them.
Some funds focus on may have access to dividend stocks to minimize your tax bill. Others, like bond funds or funds holding REITs, pay mostly ordinary dividends. When you choose a fund, check its dividend composition if you hold it in a taxable account — the tax treatment can make a real difference in your after-tax return.
Dividends reinvested through the fund's automatic reinvestment program are still taxable in the year they are paid. You do not owe tax only because you received cash; the tax is due whether the dividend is reinvested or sent to your bank account.
Special situations: REITs, MLPs, and foreign dividends
Real estate investment trusts (REITs) pay dividends that are almost always ordinary income, taxed at your full tax bracket. Master limited partnerships (MLPs) also pay ordinary dividends. If you hold these investments in a taxable account, expect a higher tax bill than you would from may have access to dividends.
Dividends from foreign corporations are ordinary dividends unless the company meets specific IRS rules — the stock must trade on a U.S. exchange, and you must meet the holding period. Many foreign dividends are taxed as ordinary income. Some countries also impose a withholding tax on dividends paid to U.S. residents; your 1099-DIV will show any foreign tax withheld, which you may be able to claim as a credit on your return.
Frequently Asked Questions
Do I owe tax on dividends if I reinvest them?
Yes. Whether you receive the dividend as cash or reinvest it automatically, you owe tax in the year it is paid. The tax is based on the amount of the dividend, not on whether you spent the money or bought more shares. This applies to dividend reinvestment plans (DRIPs) and automatic reinvestment through mutual funds.
What if I sold the stock before the ex-dividend date?
You do not receive the dividend and do not owe tax on it. The person who owned the stock on the ex-dividend date receives it. If you sold after the ex-dividend date but before the payment date, you still receive the dividend because you owned it on the date that matters.
Can I deduct dividend losses?
No. Dividend income is always taxable; you cannot offset it with losses from other investments on your tax return in the same way you can with capital gains. However, if you have capital losses from selling stocks, you can use them to reduce capital gains and up to $3,000 of ordinary income per year.
How do I know if a dividend is may have access to?
Your 1099-DIV separates may have access to and ordinary dividends in different boxes. If you are unsure whether a specific dividend qualifies, check the ex-dividend date and confirm you held the stock for at least 60 days in the 120-day window around that date. Your brokerage can also tell you which dividends are may have access to.
Do I owe tax on dividends in a retirement account?
No. Dividends in a traditional IRA, Roth IRA, 401(k), or other retirement account are not taxed when paid. In a traditional account, you pay tax when you withdraw the money in retirement. In a Roth account, may have access to withdrawals are tax-free. This is one reason retirement accounts are useful for holding dividend-paying stocks.