Dividends and capital gains are taxed at different rates, and most dividends are not taxed as capital gains
The tax rate on a dividend depends on whether it is may have access to or nonqualified. may have access to dividends are taxed at the same rates as long-term capital gains — 0%, 15%, or 20%, depending on your income. Nonqualified dividends are taxed as ordinary income, which means they use the regular tax brackets (10% through 37% in 2024). The distinction matters because may have access to dividends often result in a lower tax bill.
Whether your dividend qualifies comes down to two things: the type of stock or fund that paid it, and how long you held it. You do not choose the rate — the IRS rules determine it based on these facts.
Key Takeaways
- may have access to dividends are taxed at capital gains rates (0%, 15%, or 20%), while nonqualified dividends are taxed as ordinary income at your regular tax bracket rate.
- To may have access to, you must have held the stock for more than 60 days during a 121-day window around the dividend payment date.
- Dividends from most U.S. corporations and many mutual funds are may have access to if the holding period is met; dividends from money market funds, bonds, and REITs are typically nonqualified.
- Your brokerage reports may have access to and nonqualified dividends separately on Form 1099-DIV, so you do not have to calculate this yourself.
What makes a dividend may have access to or nonqualified
A dividend is may have access to if you received it from a U.S. corporation or a may have access to foreign corporation, and you held the stock long enough. The holding period is strict: you must have owned the shares for more than 60 days during the 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.
A dividend is nonqualified if it does not meet these rules. This includes dividends from money market funds, bond funds, preferred stock (in most cases), real estate investment trusts (REITs), and master limited partnerships (MLPs). It also includes any dividend where you did not hold the stock long enough, even if it came from a major U.S. corporation.
Your brokerage automatically sorts this for you. On your Form 1099-DIV, which arrives by January 31 each year, dividends appear in two boxes: box 1a for may have access to dividends and box 1b for nonqualified dividends. You report each amount on your tax return using the appropriate rate.
The 60-day holding period rule
The IRS requires you to hold the stock for more than 60 days within a specific 121-day window. This window opens 60 days before the ex-dividend date and closes 60 days after it. If you sell the stock before 60 days have passed, the dividend becomes nonqualified even if the company is a U.S. corporation.
This rule prevents people from buying a stock just before the dividend payment and selling when ready after. For example, if a stock goes ex-dividend on June 15, the 121-day window runs from April 16 to August 14. You must own the stock for at least 61 of those days to may have access to the dividend.
The holding period does not have to be continuous. If you sell and buy back the same stock, the days you owned it in separate periods do not add together — you must hold it continuously for the 60 days. However, if you own the stock through a mutual fund or exchange-traded fund (ETF), the fund manager's holding period is what counts, not yours.
Tax rates for may have access to versus nonqualified dividends
may have access to dividends are taxed at the long-term capital gains rates. For the 2024 tax year, these rates are 0%, 15%, or 20%. Which rate applies depends on your taxable income and filing status. The 0% rate applies to lower incomes, 15% to middle incomes, and 20% to the highest earners.
Nonqualified dividends are taxed as ordinary income. This means they are added to your other income and taxed at your marginal tax bracket, which ranges from 10% to 37% in 2024. For most people, this results in a higher tax bill than the may have access to rate would be.
The difference can be significant. A nonqualified dividend taxed at your 24% bracket costs more than twice as much as a may have access to dividend taxed at 15%. This is why holding periods matter — meeting the 60-day rule can reduce your tax liability.
Which investments pay may have access to versus nonqualified dividends
| Investment Type | Dividend Status |
|---|---|
| U.S. corporation stock (if held 60+ days) | may have access to |
| may have access to foreign corporation stock (if held 60+ days) | may have access to |
| Mutual fund or ETF holding may have access to stocks (if you hold 60+ days) | may have access to |
| Money market fund | Nonqualified |
| Bond fund or bond interest | Nonqualified |
| Real estate investment trust (REIT) | Nonqualified |
| Master limited partnership (MLP) | Nonqualified |
| Preferred stock (most cases) | Nonqualified |
| Stock held less than 60 days | Nonqualified |
Most dividends from ordinary U.S. stocks and stock mutual funds are may have access to if you meet the holding period. Dividends from income-focused investments — bonds, money market funds, REITs — are almost always nonqualified, regardless of how long you hold them. The investment type is fixed; the holding period is what you control.
When you receive a dividend from a mutual fund or ETF, the fund itself may hold a mix of may have access to and nonqualified dividend sources. The fund reports the breakdown to you on your year-end statement, showing what portion of your distribution came from each type. You use those figures when you report on your tax return.
How to report dividends on your tax return
Your brokerage sends you a Form 1099-DIV by January 31. This form lists may have access to dividends in box 1a and nonqualified dividends in box 1b. You report these amounts on Schedule B (Interest and Ordinary Dividends) if your total dividends and interest exceed $1,500, or directly on Form 1040 if they do not.
may have access to dividends go on line 5a of Form 1040 (or Schedule 1, depending on your situation). Nonqualified dividends are reported as ordinary income. Your tax software or preparer will explore the correct rate to each amount automatically once you enter the figures from your 1099-DIV.
If your brokerage made an error on the 1099-DIV — for example, marking a dividend as nonqualified when it should be may have access to — you can correct it on your return. Keep your own records of purchase dates and holding periods so you can verify the classification if needed.
Frequently Asked Questions
Can I lose the may have access to status of a dividend if I sell the stock too soon?
Yes. If you sell within 60 days of the ex-dividend date, the dividend becomes nonqualified even if the company is a U.S. corporation. The holding period is measured from the ex-dividend date, not the payment date. Plan your sales around this window if you want to preserve the lower tax rate.
Do I have to pay capital gains tax on dividends?
No. Dividends and capital gains are separate. A dividend is income paid by the company; a capital gain is profit from selling the stock. may have access to dividends are taxed at capital gains rates, but they are not capital gains themselves. You may owe both types of tax in the same year if you receive dividends and sell stocks at a profit.
What if I own a stock through a mutual fund or ETF?
The fund manager's holding period determines whether the dividend is may have access to, not yours. If the fund held the stock long enough, the dividend is may have access to even if you bought the fund shares recently. The fund reports the may have access to and nonqualified portions on your year-end statement.
Are dividends from foreign stocks taxed differently?
Dividends from may have access to foreign corporations are taxed the same way as U.S. dividends if you meet the 60-day holding period. However, some foreign countries withhold tax on dividends before they reach you. You may be able to claim a foreign tax credit for the amount withheld. Dividends from non-may have access to foreign corporations are always nonqualified.
Does the dividend reinvestment affect the holding period?
No. If you reinvest dividends automatically, the new shares purchased with that dividend have their own holding period starting from the purchase date. The original shares keep their original purchase date. This matters if you sell some shares later — you need to track which shares you are selling to determine the holding period correctly.