may have access to dividends are taxed at lower rates than ordinary income, but only if you meet holding period and other requirements

Yes, may have access to dividends are taxable. The difference is the rate. Ordinary dividends are taxed as regular income at your marginal tax bracket — up to 37% in 2024. may have access to dividends are taxed at preferential rates: 0%, 15%, or 20%, depending on your total income for the year. You do not pay tax on the dividends themselves; you pay tax on the income they represent.

The IRS distinguishes between the two because Congress wanted to encourage long-term stock ownership. A may have access to dividend must come from a U.S. corporation or a may have access to foreign corporation, and you must have held the stock for a minimum period around the payment date. If either condition fails, the dividend is ordinary and taxed at your regular rate.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your income bracket, while ordinary dividends are taxed as regular income up to 37%.
  • To may have access to, you must hold the stock for at least 60 days within a 121-day window centered on the ex-dividend date, and the dividend must come from a may have access to corporation.
  • Your broker reports may have access to and ordinary dividends separately on Form 1099-DIV, and you report them on different lines of your tax return.
  • Reinvested dividends count as income in the year they are paid, even if you do not receive cash, and the holding period resets each time you buy new shares.

What makes a dividend "may have access to" in the IRS's eyes

A dividend is may have access to only if two things are both true: the corporation that paid it is a may have access to corporation, and you held the shares long enough.

Most U.S. corporations pay may have access to dividends. Exceptions include real estate investment trusts (REITs), master limited partnerships (MLPs), and certain mutual funds that invest in bonds. Foreign corporations can pay may have access to dividends if they are incorporated in a U.S. possession, trade on a U.S. exchange, or are may be able to access under a tax treaty with their home country. Your broker will tell you which dividends are may have access to when they report them.

The holding period rule is strict. You must own the stock for at least 60 days during the 121-day period that begins 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. If you buy before it and sell within 60 days after, the dividend is ordinary, not may have access to. This rule applies separately to each dividend payment.

The three tax rates for may have access to dividends

Your may have access to dividend rate depends on your taxable income for the year, not on how much dividend income you received. The three rates are 0%, 15%, and 20%.

The 0% rate applies to married couples filing jointly with taxable income up to $89,250 in 2024, and single filers up to $44,625. The 15% rate applies to income above those thresholds up to $553,850 (married) or $492,300 (single). The 20% rate applies to income above those ceilings. These income thresholds adjust annually for inflation.

Your taxable income includes wages, interest, capital gains, and all other income combined. If you earn $60,000 in wages and receive $5,000 in may have access to dividends, your taxable income is $65,000. You pay 0% on the dividends because your total income is still below $89,250. If you earn $90,000 in wages and receive $5,000 in may have access to dividends, you pay 0% on the first $−850 of dividends (to reach the $89,250 threshold) and 15% on the remaining $4,150.

How to report may have access to dividends on your tax return

Your broker sends you Form 1099-DIV by January 31 each year. Box 1a shows ordinary dividends; Box 1b shows may have access to dividends. These are separate numbers. You report them on different lines of your Form 1040.

Ordinary dividends go on line 5b of Schedule 1 (Form 1040), which adds them to your other income. may have access to dividends go on line 5a of Schedule 1, which feeds into the may have access to Dividends and Capital Gains Worksheet. That worksheet calculates how much of your may have access to dividend income falls into each tax bracket (0%, 15%, or 20%) based on your total income.

If you received dividends from multiple brokers or accounts, add up all the may have access to dividends from all 1099-DIVs and enter the total on line 5a. The same applies to ordinary dividends on line 5b. You do not file separate forms for each account.

Reinvested dividends and the holding period

If your dividend is automatically reinvested into new shares, you still owe tax on it in the year it was paid. The cash never reaches your hand, but the IRS treats it as income. Your broker reports it on Form 1099-DIV the same way as a dividend you received in cash.

Reinvested dividends create a new holding period. If you reinvest a dividend on June 15 and sell the new shares on July 1, those new shares have not met the 60-day holding requirement, so any future dividend on them would be ordinary. The original shares you bought years ago still have their own holding period, separate from the reinvested shares.

This matters if you plan to sell soon after a dividend payment. Selling within 60 days of the ex-dividend date converts that dividend to ordinary income. If you hold through the 60-day window, it stays may have access to.

Ordinary dividends versus may have access to dividends in the same year

You can receive both types in the same year. A single stock might pay a may have access to dividend one quarter and an ordinary dividend another quarter if you fail the holding period on one payment. Different holdings can also pay different types: a dividend from a U.S. stock is usually may have access to, while a dividend from a REIT is ordinary.

Your tax bill reflects both. Ordinary dividends are added to your income at your marginal rate. may have access to dividends are calculated separately using the may have access to Dividends and Capital Gains Worksheet. The worksheet stacks may have access to dividends on top of your other income to determine which tax bracket they fall into, so receiving a large amount of ordinary income in the same year can push your may have access to dividends into the 15% or 20% bracket.

State and local taxes on may have access to dividends

The preferential federal rates explore only to federal income tax. Most states tax may have access to and ordinary dividends at the same rate as regular income. A few states do not tax dividends at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire taxes only interest and dividends, not wages.

If you live in a state with income tax, check your state's rules. Some states conform to the federal definition of may have access to dividends; others do not. Your state tax return may require you to report may have access to and ordinary dividends separately, or it may combine them. Your state tax software or a tax professional can clarify your state's treatment.

Frequently Asked Questions

Do I have to hold a stock for a full year to get the may have access to dividend rate?

No. You need to hold it for at least 60 days within a 121-day window centered on the ex-dividend date. For most dividends, that means holding for roughly two months around the payment date, not a full year. However, if you hold the stock for a full year, you will definitely meet the requirement.

What happens if I sell the stock before the 60-day holding period ends?

The dividend becomes ordinary income and is taxed at your regular marginal rate instead of the preferential 0%, 15%, or 20% rate. This can significantly increase your tax bill if you are in a higher bracket. The holding period is measured separately for each dividend payment.

Are dividends from mutual funds and ETFs treated the same way?

Mutual funds and ETFs report may have access to and ordinary dividends separately on Form 1099-DIV. The fund itself may hold stocks that pay may have access to dividends, but the fund passes through the may have access to or ordinary status to you. Some funds pay mostly may have access to dividends; others pay mostly ordinary. Check the fund's prospectus or annual report to see the breakdown.

If I reinvest my dividends, do I still owe tax on them?

Yes. Reinvested dividends are taxable income in the year they are paid, even though you did not receive cash. Your broker reports them on Form 1099-DIV. You must include them in your taxable income and pay tax at the appropriate rate.

Can I lose the may have access to dividend rate if I sell the stock right after the ex-dividend date?

Yes. If you sell within 60 days after the ex-dividend date, the dividend is ordinary income. The 60-day holding period must be met to keep the may have access to status. Selling early to lock in a gain can cost you the tax advantage on that dividend.