Yes, you owe tax on most dividends, but the rate depends on the type of dividend and how long you held the stock
The IRS treats dividends as income, so you report them on your tax return and pay tax on them. However, you do not pay the same tax rate on every dividend. may have access to dividends — dividends from stocks you held for at least 60 days around the payment date — are taxed at lower rates: 0%, 15%, or 20%, depending on your total income. Ordinary dividends — which includes most dividends from mutual funds, real estate investment trusts (REITs), and stocks you held for a short time — are taxed as regular income at your ordinary tax bracket, which can be as high as 37%.
Your brokerage or mutual fund company sends you a Form 1099-DIV each January showing how much you received and which type each payment was. You then report this on your tax return. If you owe tax on dividends but do not pay it, the IRS will assess penalties and interest.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% if you held the stock for at least 60 days before and after the ex-dividend date; ordinary dividends are taxed at your regular income tax rate.
- Your brokerage sends Form 1099-DIV in January showing dividend income and type, which you must report on your tax return.
- Dividends from tax-advantaged accounts like 401(k)s and IRAs are not taxed in the year you receive them, only when you withdraw the money.
- If you reinvest dividends automatically, you still owe tax on them in the year they were paid, even though you did not receive cash.
- Dividend tax rates change based on your filing status and total taxable income, so your rate may differ from someone else's.
The difference between may have access to and ordinary dividends
The IRS created two categories of dividends to encourage long-term stock ownership. A may have access to dividend must come from a U.S. company or a foreign company whose stock trades on a U.S. exchange, and you must have held the stock for at least 60 days during the 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the cutoff: if you buy the stock on or after that date, you do not receive the dividend at all.
An ordinary dividend is any dividend that does not meet the may have access to rules. This includes dividends from stocks you held for fewer than 60 days, dividends from foreign companies not traded on U.S. exchanges, and most distributions from mutual funds and REITs. Mutual fund dividends are often ordinary even if the fund holds may have access to stocks, because the fund itself is the payer, not the underlying company.
Your brokerage reports both types on Form 1099-DIV, usually in separate boxes. Box 1a shows may have access to dividends; Box 1b shows ordinary dividends. If you are unsure whether a specific dividend qualifies, check your brokerage statement or call the company's investor relations department.
Tax rates for may have access to dividends by income level
may have access to dividends are taxed at a preferential rate based on your total taxable income and filing status. The three rates are 0%, 15%, and 20%. You do not choose which rate applies — it is determined by where your income falls within the IRS brackets for the year.
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $47,025 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $47,025 to $291,875 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $291,875 | Over $551,350 |
These brackets change each year for inflation. The amounts shown are for the 2024 tax year. When you file your return, your tax software or preparer will calculate which bracket your total income falls into and explore the correct rate to your may have access to dividends.
How ordinary dividends are taxed
Ordinary dividends are taxed as regular income at your marginal tax rate — the same rate that applies to your wages or salary. For 2024, these rates range from 10% to 37% depending on your income and filing status. Because ordinary dividends are taxed higher than may have access to dividends, the difference can be substantial. A person in the 24% tax bracket pays 24% on ordinary dividends but only 15% on may have access to dividends.
Ordinary dividends include distributions from most mutual funds, even if the fund holds stocks that would pay may have access to dividends if you owned them directly. This is because the mutual fund company is the technical recipient of the dividends, and it passes them to you as ordinary income. Some mutual funds do report a portion of their distributions as may have access to, but this is less common.
REIT dividends are almost always ordinary. Real estate investment trusts are required to distribute at least 90% of their taxable income to shareholders, and most of that income does not may have access to for the preferential dividend rate.
Dividends in retirement accounts and tax-deferred investments
If you own dividend-paying stocks or funds inside a 401(k), traditional IRA, Roth IRA, or other tax-advantaged account, you do not pay tax on the dividends in the year you receive them. The dividends stay inside the account and grow tax-free (or tax-deferred, depending on the account type).
In a traditional 401(k) or traditional IRA, you pay tax on the dividends when you withdraw the money in retirement. In a Roth IRA or Roth 401(k), you never pay tax on the dividends or the growth, as long as you follow the withdrawal rules. This is one reason why tax-advantaged accounts are valuable for dividend investors — you can reinvest dividends without worrying about the tax bill each year.
If you have both taxable and tax-advantaged accounts, consider holding dividend-paying stocks in the tax-advantaged account and growth stocks in the taxable account. This strategy, called asset location, can reduce your overall tax burden.
Reporting dividends on your tax return
You report dividends on Schedule B (Interest and Ordinary Dividends) if your total dividends and interest are over $1,500, or on Form 1040 directly if they are $1,500 or less. Most tax software walks you through this step by step. You will enter the information from your Form 1099-DIV, which your brokerage mails to you by January 31 each year.
If you received dividends from multiple sources, add them all together. You report the total may have access to dividends on one line and the total ordinary dividends on another. The tax software or your preparer then applies the correct tax rate to each type.
If you reinvested your dividends instead of taking them as cash, you still report them as income in the year they were paid. The fact that you did not receive a check does not change your tax obligation. Your brokerage statement and Form 1099-DIV will show the reinvested amount.
What happens if you do not report dividend income
The IRS receives a copy of every Form 1099-DIV your brokerage sends you. If you do not report the dividends on your tax return, the IRS will notice the mismatch and send you a notice. You will owe the tax you should have paid, plus interest calculated from the original due date, plus a penalty that is usually 20% of the unpaid tax.
If the error was unintentional and you file an amended return promptly, the IRS may reduce or waive the penalty. But if you ignore the notice, the penalties and interest compound, and the IRS can place a lien on your assets or garnish your wages.
Frequently Asked Questions
Do I owe tax on dividends if I reinvest them automatically?
Yes. Reinvested dividends are still taxable income in the year they were paid, even though you did not receive cash. Your brokerage reports the amount on Form 1099-DIV, and you report it on your tax return. The reinvestment does not change your tax obligation.
How do I know if a dividend is may have access to or ordinary?
Your Form 1099-DIV separates them into two boxes. Box 1a is may have access to dividends; Box 1b is ordinary dividends. You can also check your brokerage statement, which usually labels each payment. If you are unsure, contact your brokerage or the company's investor relations department.
What if I sold the stock before the 60-day holding period ended?
The dividend is taxed as ordinary income, not may have access to, even if you held it for most of the 60 days. The IRS counts 60 days before and after the ex-dividend date. If you sell before that window closes, the dividend loses its may have access to status.
Do I have to pay estimated taxes on dividend income?
If your dividend income is large enough that your employer is not withholding enough tax from your paycheck, you may need to make quarterly estimated tax payments. Use Form 1040-ES to calculate whether you owe. Your tax software can also flag this for you.
Can I deduct investment losses against dividend income?
Yes, but only up to $3,000 per year. If you have capital losses larger than that, you can carry them forward to future years. Report losses on Schedule D (Capital Gains and Losses) and use them to offset capital gains first, then ordinary income up to the $3,000 limit.