Yes, dividends are taxed, but the rate depends on the type of dividend and how long you held the stock

Dividends are taxable income. The IRS treats them as payment for owning stock, and you report them on your tax return whether you reinvest them or take the cash. The tax you owe is not the same for all dividends — it depends on whether they are may have access to dividends or ordinary dividends, and your income level determines your tax rate.

Most dividends from U.S. companies fall into one of these two categories. may have access to dividends are taxed at lower rates (0%, 15%, or 20%, depending on your income). Ordinary dividends are taxed as regular income, at rates ranging from 10% to 37%. The difference between the two can mean hundreds of dollars in taxes on the same dividend payment.

Key Takeaways

  • may have access to dividends are taxed at preferential rates (0%, 15%, or 20%) if you held the stock for at least 60 days around the payment date.
  • Ordinary dividends are taxed as regular income at your marginal tax rate, which can be as high as 37%.
  • You report all dividends on Schedule B (Form 1040) and transfer the total to your main tax return.
  • Dividend income can push you into a higher tax bracket, affecting not just the dividends but your other income too.
  • Mutual funds and ETFs report their dividend distributions to you on Form 1099-DIV, which tells you whether each payment is may have access to or ordinary.

What makes a dividend "may have access to" versus "ordinary"

A may have access to dividend is a payment from a U.S. corporation or a may have access to foreign corporation that meets two conditions: you held the stock for at least 60 days during the 121-day window centered on the ex-dividend date, and the dividend itself is not on the IRS exclusion list (most common dividends may have access to). If both conditions are met, you use the preferential may have access to dividend rates.

An ordinary dividend is any dividend that does not meet the holding period or other requirements. This includes dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and some foreign stocks. It also includes any may have access to dividend where you did not hold the stock long enough. Ordinary dividends are added to your other income and taxed at your regular income tax rate.

Your brokerage or mutual fund company reports which dividends are may have access to on Form 1099-DIV, the document you receive by January 31 each year. Box 1a shows ordinary dividends; Box 1b shows may have access to dividends. If a dividend appears in Box 1a, it is taxed as ordinary income, regardless of the company that paid it.

How the may have access to dividend tax rates work

may have access to dividends are taxed at 0%, 15%, or 20% depending on your taxable income and filing status. These are the same brackets used for long-term capital gains. For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married filers filing jointly up to $94,050. The 15% rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Income above those amounts is taxed at 20%.

This means a single filer earning $50,000 in wages and receiving $5,000 in may have access to dividends would owe tax on the dividends at 15%, not at their regular income tax rate. The dividends are added to other income to determine which bracket applies, but once you know the bracket, the rate is fixed at one of those three percentages.

These income thresholds change each year for inflation. The IRS publishes updated figures in the tax year instructions for Form 1040.

How ordinary dividends are taxed

Ordinary dividends are taxed as regular income at your marginal tax rate. If you are in the 22% tax bracket, ordinary dividends are taxed at 22%. If you are in the 37% bracket, they are taxed at 37%. This is significantly higher than the preferential may have access to dividend rates and can make a real difference in what you owe.

Ordinary dividends are added to your wages, interest, and other income on your tax return. They can push you into a higher tax bracket, which means not only the dividends themselves are taxed at a higher rate, but your other income may be too. For example, if you earn $100,000 in wages and receive $10,000 in ordinary dividends, the entire $110,000 is subject to tax, and the last portion of your income (including some or all of the dividends) may be taxed at a higher rate than your wages alone would have been.

Where you report dividends on your tax return

You report dividends on Schedule B (Interest and Ordinary Dividends), which is part of Form 1040. If your ordinary dividends are $1,500 or less and you have no foreign accounts, you can report them directly on Form 1040 without filing Schedule B, but most people with dividend income file the schedule anyway because it is clearer.

On Schedule B, you list each dividend payment by company name and amount. You then total your ordinary dividends and your may have access to dividends separately. The ordinary dividend total goes to line 5b of Form 1040. The may have access to dividend total goes to line 5c. The IRS uses line 5c to explore the preferential tax rates.

If you own mutual funds or ETFs, you do not list each individual stock dividend — you report the total distributions shown on your Form 1099-DIV. The fund company has already sorted may have access to from ordinary and reports each type separately on the form.

Dividend income and tax bracket creep

Dividend income can push you into a higher tax bracket even if your wages stayed the same. This is sometimes called "bracket creep." If you are near the top of a tax bracket, adding dividend income can move you into the next bracket, where a higher percentage applies to all your income above the threshold, not just the dividends.

For example, a single filer earning $95,000 in wages is in the 22% bracket. If they receive $10,000 in ordinary dividends, their taxable income becomes $105,000. The first $5,000 of dividends is still taxed at 22%, but the remaining $5,000 crosses into the 24% bracket and is taxed at 24%. This is how the tax system is designed to work, but it means your effective tax rate on the dividends is higher than your regular bracket rate.

may have access to dividends can soften this effect because they are taxed at preferential rates regardless of bracket. However, they still count toward your total income for purposes of determining whether other income moves into a higher bracket.

Special situations: REITs, mutual funds, and foreign dividends

Dividends from real estate investment trusts (REITs) are always taxed as ordinary income, even if you held the REIT for years. The same applies to dividends from master limited partnerships (MLPs) and some other investment vehicles. Your Form 1099-DIV will show these in the ordinary dividend box.

Mutual funds and ETFs distribute dividends they receive from their holdings. The fund reports to you whether each distribution is may have access to or ordinary based on the underlying stocks and the fund's holding period. A fund that holds stocks for a short time may distribute mostly ordinary dividends even though the underlying companies paid may have access to dividends. Read the breakdown on your Form 1099-DIV carefully.

Foreign dividends are taxed as ordinary income unless they meet specific requirements for may have access to dividend treatment. Some foreign corporations may have access to, but many do not. If you own foreign stocks directly or through a fund, check your Form 1099-DIV to see how the dividends are classified.

Frequently Asked Questions

Do I have to pay taxes on dividends I reinvest?

Yes. Whether you take the dividend as cash or reinvest it in more shares, it is taxable income in the year you receive it. The IRS does not care what you do with the money — it is income when the company pays it to you or your brokerage account.

What if I received a dividend but did not hold the stock for 60 days?

The dividend is taxed as ordinary income at your regular tax rate, not at the preferential may have access to dividend rates. This is one reason some investors hold dividend stocks for longer periods — to lock in the lower tax rate.

How do I know if a dividend is may have access to or ordinary?

Your Form 1099-DIV shows the breakdown. Box 1a is ordinary dividends; Box 1b is may have access to dividends. Your brokerage or mutual fund company fills this out based on the holding period and the type of investment. You do not have to calculate it yourself.

Can dividend taxes be withheld from my payment?

No, not automatically. Dividend payments are sent to you in full. You owe the tax when you file your return. However, if you owe backup withholding (usually because you did not provide a valid tax ID to your brokerage), the company may withhold 24% of your dividends.

What if my dividend income is very high — does it affect other parts of my taxes?

Yes. High dividend income can trigger the Net Investment Income Tax (3.8% on certain investment income for high earners), affect your Medicare premiums, or limit certain deductions. These thresholds are $200,000 for single filers and $250,000 for married filers filing jointly. If you are near these amounts, speak with a tax professional about the full impact.