Ordinary dividends are taxed as regular income at your ordinary tax rate

When you receive an ordinary dividend from a stock or mutual fund, the IRS treats it as income and taxes it at the same rate as your wages, salary, or other earnings. That rate depends on your tax bracket — which is determined by your total income for the year. If you earn $50,000 and receive $2,000 in ordinary dividends, the IRS counts that $52,000 as your taxable income and applies your bracket to the whole amount.

This is different from may have access to dividends, which receive preferential tax treatment and are taxed at lower rates (0%, 15%, or 20%, depending on your bracket). Ordinary dividends do not get this break. They are taxed at ordinary rates: 10%, 12%, 22%, 24%, 32%, 35%, or 37% in 2024, depending on how much total income you have.

Your brokerage or fund company will report ordinary dividends to you on a Form 1099-DIV, which you receive by January 31 each year. You report this amount on your tax return, and you owe tax on it whether or not you reinvested the dividend back into the stock.

Key Takeaways

  • Ordinary dividends are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your total income and filing status.
  • Your brokerage reports ordinary dividends on Form 1099-DIV, which you must include on your tax return.
  • You owe tax on ordinary dividends in the year you receive them, even if you reinvest the money into more shares.
  • may have access to dividends receive lower tax rates (0%, 15%, or 20%), so knowing which type you hold matters for your tax bill.
  • Dividend income is added to your other income to determine your tax bracket, which can push you into a higher rate.

How your tax bracket determines what you pay

The U.S. uses a progressive tax system, meaning your tax rate increases as your income rises. You do not pay one flat rate on all your income — instead, you pay 10% on the first portion, then 12% on the next portion, and so on. Ordinary dividends are stacked on top of your other income and taxed at whatever rate applies to that portion.

For example, if you are single and earn $45,000 in wages, you are in the 22% bracket for 2024. If you then receive $5,000 in ordinary dividends, your total income is $50,000. That extra $5,000 is taxed at 22% (or possibly at 24% if it pushes you into the next bracket). A person in the 12% bracket who receives the same $5,000 dividend pays only 12% on it.

Your filing status (single, married filing jointly, head of household) also affects your brackets. Married couples filing jointly have wider brackets than single filers, so the same dividend amount may be taxed at a lower rate.

The difference between ordinary and may have access to dividends

Not all dividends are taxed the same way. may have access to dividends — which come from stocks you have held for more than 60 days around the dividend date — are taxed at preferential rates: 0%, 15%, or 20%. These rates are much lower than ordinary rates, especially for people in the 22% bracket or higher.

Ordinary dividends, by contrast, get no special treatment. They are taxed at your full ordinary rate. This usually includes dividends from real estate investment trusts (REITs), preferred stock, money market funds, and bond funds. Some mutual funds also distribute ordinary dividends alongside may have access to ones.

Your Form 1099-DIV will separate the two types. Box 1a shows may have access to dividends; Box 1b shows ordinary dividends. You report each on your tax return in the correct place so the IRS taxes them at the right rates.

When you owe tax on dividends you receive

You owe tax on ordinary dividends in the year you receive them, regardless of what you do with the money. If your brokerage automatically reinvests dividends back into the stock, you still owe tax that year — you do not defer it until you sell the shares. This is called the dividend reinvestment tax, and it catches many people off guard.

The dividend is considered received on the ex-dividend date, which is the date the stock trades without the dividend attached. Your brokerage will report this date on your 1099-DIV. You do not have to do anything to trigger the tax; it is automatic once the dividend is paid.

If you hold the stock in a tax-deferred account like a traditional IRA or 401(k), you do not owe tax on the dividend that year. The tax is deferred until you withdraw money from the account. In a Roth IRA, may have access to dividends are never taxed, and ordinary dividends are tax-free as long as you follow the withdrawal rules.

How dividend income affects your overall tax bill

Ordinary dividends are added to your other income, which can have ripple effects on your taxes. If the extra income pushes you into a higher tax bracket, you pay more not just on the dividend but potentially on some of your other income too. Additionally, higher income can affect other tax items: the amount of deductions you can claim, whether you owe the net investment income tax (an extra 3.8% tax on investment income above certain thresholds), and whether you lose tax credits you would otherwise receive.

For this reason, the total tax cost of a dividend is sometimes higher than the stated tax rate on that dividend alone. A financial professional or tax software can model this for your specific situation.

Reporting ordinary dividends on your tax return

You report ordinary dividends on Schedule B (Interest and Ordinary Dividends) if your total dividends and interest exceed $1,500. If they are $1,500 or less, you can report them directly on Form 1040. The amount comes from Box 1b of your Form 1099-DIV.

If you receive dividends from multiple sources, you add them all together and report the total. You do not file a separate return for each dividend payment. Keep your 1099-DIV forms until after the tax important date in case the IRS has questions.

If you sold shares during the year, you may also owe tax on capital gains, which is separate from dividend tax. Capital gains are reported on Schedule D, not on the dividend schedule.

State and local taxes on ordinary dividends

Most states tax ordinary dividends as income at their state income tax rates. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividends at all. Others tax dividends at a lower rate than wages or not at all if the dividend comes from in-state companies.

Some cities also tax investment income. New York City, for example, taxes dividends as part of your city income tax. Check your state and local tax rules to understand the full picture of what you owe on dividend income.

Frequently Asked Questions

Can I avoid paying tax on ordinary dividends?

Not if you hold the stock in a regular taxable account. You owe tax on ordinary dividends in the year you receive them. You can reduce tax by holding the stock in a tax-deferred account like a traditional IRA or 401(k), or by choosing investments that produce may have access to dividends or capital gains instead of ordinary dividends. Tax-loss harvesting — selling losing positions to offset gains — can also reduce your overall tax bill.

What is the difference between ordinary dividends and may have access to dividends?

Ordinary dividends are taxed at your ordinary income tax rate (10% to 37%). may have access to dividends are taxed at preferential rates (0%, 15%, or 20%) if you held the stock for more than 60 days around the dividend date. may have access to dividends are usually from common stocks; ordinary dividends come from REITs, preferred stock, bond funds, and money market funds.

Do I owe tax on reinvested dividends?

Yes. If your brokerage automatically reinvests dividends into more shares, you still owe tax on the dividend amount that year. The tax is not deferred until you sell the shares. This is true for both ordinary and may have access to dividends in taxable accounts.

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

Your Form 1099-DIV separates them. Box 1a lists may have access to dividends; Box 1b lists ordinary dividends. If you are unsure, contact your brokerage or fund company. Generally, dividends from common stocks held for more than 60 days are may have access to; dividends from REITs, preferred stock, and bond funds are ordinary.

Can ordinary dividends push me into a higher tax bracket?

Yes. Dividend income is added to your other income to determine your tax bracket. If the dividend pushes your total income into a higher bracket, you pay the higher rate on that portion of income. This can also affect other tax items like deductions and credits.