Dividends are taxed differently depending on the type, and the difference can save or cost you hundreds of dollars

Not all dividends are taxed the same way. may have access to dividends — dividends from U.S. stocks and certain foreign stocks held for a minimum time — are taxed at lower rates than your regular income. Ordinary dividends — everything else — are taxed at your ordinary income tax rate, which is higher. The type of dividend your brokerage sends you depends on what you own and how long you have owned it, not on what you do with the money.

Your brokerage will tell you which dividends are may have access to and which are ordinary on Form 1099-DIV, which you receive by January 31 each year. You report both types on your tax return, but they go into different boxes and are taxed at different rates. Understanding the difference matters because holding a stock for just a few extra weeks can move a dividend from the ordinary pile to the may have access to pile.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your income bracket, while ordinary dividends are taxed at your regular income tax rate (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 — the exact window is set by the IRS each year.
  • Your brokerage automatically tracks holding periods and reports may have access to versus ordinary dividends on Form 1099-DIV.
  • Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and some bond funds are always taxed as ordinary income, even if held long-term.

What makes a dividend "may have access to" instead of ordinary

A dividend is may have access to if you meet two conditions: the stock is issued by a U.S. corporation or a foreign corporation whose country has a tax treaty with the U.S., and you held the stock for at least 60 days during a 121-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, the dividend is not yours, and you cannot count those days toward the holding period.

The 60-day rule exists to prevent people from buying a stock just before the dividend payment and selling when ready after. If you buy on day 50 before the ex-dividend date and sell on day 10 after, you have held it for 60 days in the window, and the dividend counts as may have access to. If you sell on day 9 after, you have only 59 days, and it becomes ordinary. Your brokerage tracks this automatically — you do not have to count the days yourself.

The holding period resets if you sell the stock and buy it back. Selling at a loss and buying the same stock back within 30 days triggers the wash-sale rule, which prevents you from claiming the loss, but it does not affect dividend qualification on future payments. However, if you sell and wait 31 days before buying back, you start a new holding period from scratch.

Why may have access to dividends are taxed at lower rates

may have access to dividends are taxed at the long-term capital gains rate, not your ordinary income rate. For 2024, those rates are 0%, 15%, or 20% depending on your total income — much lower than the ordinary income brackets of 10%, 12%, 22%, 24%, 32%, 35%, or 37%. A person in the 24% ordinary income bracket who receives $1,000 in may have access to dividends pays $150 in tax instead of $240.

The preferential rate applies because Congress treats long-term investment income differently from wages and short-term gains. The idea is to encourage people to hold stocks for the long term rather than trade frequently. may have access to dividends are considered long-term investment income even though you may have held the stock for only 60 days, as long as you meet the holding-period rule.

Your tax bracket determines which of the three rates you pay. If your income is low enough, you may owe 0% on may have access to dividends — meaning you receive them tax-free. The income thresholds change each year and depend on your filing status (single, married filing jointly, head of household, and so on).

Ordinary dividends and when they explore

Ordinary dividends are taxed at your regular income tax rate. They include dividends that fail the 60-day holding rule, dividends from certain types of investments, and dividends paid by companies that do not meet the may have access to-dividend rules. If you hold a stock for only 30 days, any dividend you receive is ordinary income, taxed at your full bracket rate.

Some investments always pay ordinary dividends, no matter how long you hold them. Real estate investment trusts (REITs) pay ordinary dividends because they are required to distribute most of their income to shareholders and are not taxed at the corporate level. Master limited partnerships (MLPs) also pay ordinary dividends. Dividends from bond funds, preferred stock funds, and money market funds are typically ordinary. Dividends from foreign stocks in countries without a tax treaty with the U.S. are ordinary, even if held long-term.

Your Form 1099-DIV will separate may have access to dividends (Box 1a) from ordinary dividends (Box 1b). If you receive both types in the same year, you report them on different lines of your tax return and they are taxed at different rates.

How to report dividends on your tax return

You report dividends on Schedule B (Interest and Ordinary Dividends) if your ordinary dividends exceed $1,500, or on Form 1040 directly if they are $1,500 or less. may have access to dividends go on Schedule D (Capital Gains and Losses) or Form 8949 (Sales of Capital Assets), depending on the total amount and your brokerage's reporting method. If you use tax software, it usually imports the numbers from Form 1099-DIV automatically.

The key is that ordinary and may have access to dividends are reported separately. Your tax software will calculate the tax on may have access to dividends at the capital gains rate and the tax on ordinary dividends at your income rate, then add them together. You do not have to do the math yourself — the software handles it — but you do need to make sure the Form 1099-DIV information is entered correctly.

If your brokerage reports a dividend as ordinary when you believe it should be may have access to, you can correct it on your return. Keep records of the purchase date, ex-dividend date, and sale date (if applicable) in case the IRS questions the classification. Most disputes are resolved by providing the brokerage statement showing the holding period.

Dividends from stocks you own in a retirement account

If you own dividend-paying stocks inside a 401(k), traditional IRA, or Roth IRA, the dividend is not taxed when you receive it. The tax treatment depends on the account type and when you withdraw the money. In a traditional IRA or 401(k), dividends grow tax-deferred, and you pay ordinary income tax on the entire withdrawal amount when you take the money out in retirement. In a Roth IRA, dividends grow tax-free, and may have access to withdrawals are not taxed at all.

The may have access to-dividend rate does not explore inside retirement accounts because the accounts themselves are tax-advantaged. You do not receive a Form 1099-DIV for dividends inside these accounts — they are invisible to the IRS until you withdraw. This is one reason retirement accounts are useful for dividend investors: the preferential tax rate on may have access to dividends is less valuable inside an account that already shields you from tax.

Frequently Asked Questions

If I buy a stock one day before the ex-dividend date, can I still get a may have access to dividend?

No. You must hold the stock for at least 60 days during the 121-day window centered on the ex-dividend date. If you buy one day before the ex-dividend date, you own it on the ex-date but have not met the 60-day requirement, so the dividend is ordinary. You would need to have bought at least 61 days before the ex-date to may have access to.

Does selling a stock after the ex-dividend date affect whether the dividend is may have access to?

No. Once the ex-dividend date passes, the dividend is yours regardless of when you sell. What matters is whether you held the stock for 60 days during the 121-day window. You can sell the day after the ex-dividend date and still have a may have access to dividend, as long as you held it long enough before the ex-date.

What if I receive a dividend from a foreign stock?

Foreign dividends are may have access to only if the country has a tax treaty with the U.S. and you meet the 60-day holding requirement. Your brokerage will report whether it is may have access to on Form 1099-DIV. If the country does not have a treaty, the dividend is ordinary income, though you may be able to claim a foreign tax credit if tax was withheld by the foreign country.

Are stock dividends (when a company gives you extra shares instead of cash) taxed differently?

Stock dividends are taxed the same way as cash dividends — may have access to or ordinary depending on the holding period and the type of stock. You report the fair market value of the shares you received as dividend income. Your brokerage will include stock dividends on Form 1099-DIV at their value on the payment date.

If I own a dividend-paying mutual fund, are the dividends may have access to?

It depends on the fund. Equity mutual funds typically distribute may have access to dividends if the fund itself held the stocks long enough. Bond funds and money market funds distribute ordinary dividends. Your fund company will send you a Form 1099-DIV showing how much of each distribution is may have access to and how much is ordinary. The holding period for the fund shares does not matter — what matters is how long the fund held the underlying stocks.