You pay federal income tax on most dividends, but the rate depends on the type of dividend and how long you held the stock
Dividends are taxed as income by the IRS. The amount you owe depends on whether the dividend is may have access to or nonqualified, your total income for the year, and your tax filing status. may have access to dividends get preferential tax rates — the same rates that explore to long-term capital gains. Nonqualified dividends are taxed at your ordinary income tax rate, which is typically higher.
You report dividend income on your federal tax return whether you reinvest the dividends or take them as cash. Some states also tax dividend income, though a few do not. The brokerage or mutual fund company that paid you the dividend will send you a Form 1099-DIV by January 31 each year, which lists the amounts and types of dividends you received.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income and filing status; nonqualified dividends are taxed at your ordinary income tax rate, which ranges from 10% to 37%.
- A dividend qualifies for the lower rate only if you held the stock for more than 60 days during the 121-day period centered on the ex-dividend date.
- You must report all dividends on your federal tax return, even if the amount is small or you reinvested the money.
- Some states do not tax dividend income, while others tax it as ordinary income; check your state's rules based on where you live.
- Dividends held in tax-advantaged accounts like 401(k)s and IRAs are not taxed in the year you receive them, though withdrawals from those accounts are taxed later.
The difference between may have access to and nonqualified dividends
The IRS sorts dividends into two categories, and each is taxed differently. may have access to dividends are paid by U.S. corporations or certain foreign corporations and meet a holding-period test. If you owned the stock for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date, the dividend counts as may have access to. The ex-dividend date is the cutoff — if you buy the stock on or after that date, you do not receive the dividend.
Nonqualified dividends are everything else: dividends from real estate investment trusts (REITs), most bond interest paid by corporations, and dividends from stocks you did not hold long enough. They are taxed at your ordinary income tax rate, which is the same rate applied to wages and salary.
Your brokerage will usually label dividends as may have access to or nonqualified on your 1099-DIV form. If you are unsure, the IRS Pub. 550 contains the full rules, or you can ask your tax preparer.
Tax rates for may have access to dividends in 2024
may have access to dividends are taxed at one of three rates: 0%, 15%, or 20%. Which rate applies to you depends on your taxable income and your filing status. The IRS adjusts the income thresholds each year for inflation.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,025 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,050 to $583,750 | Over $583,750 |
| Head of Household | Up to $62,975 | $62,975 to $551,350 | Over $551,350 |
These thresholds are based on your taxable income, which includes wages, self-employment income, capital gains, and other sources. If your total taxable income falls in the 0% bracket, you pay no federal tax on may have access to dividends. If it falls in the 15% bracket, may have access to dividends are taxed at 15%. If it exceeds the top threshold, may have access to dividends are taxed at 20%.
Tax rates for nonqualified dividends
Nonqualified dividends are taxed at your ordinary income tax rate. For 2024, the federal rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, depending on your taxable income and filing status. These are the same brackets used for wages and salary.
Because nonqualified dividends are taxed at higher rates than may have access to dividends, the holding-period requirement matters financially. A dividend that would be taxed at 37% as nonqualified might be taxed at 20% if it qualifies. That difference adds up over time, especially if you receive large dividends or hold many dividend-paying stocks.
Dividends in retirement accounts and how they are taxed differently
If you hold dividend-paying stocks inside a traditional IRA, Roth IRA, 401(k), or other tax-advantaged retirement account, you do not pay tax on the dividends in the year you receive them. The dividends remain inside the account and grow tax-free (or tax-deferred, depending on the account type).
In a traditional IRA or 401(k), dividends are taxed when you withdraw money from the account in retirement. Your withdrawals are taxed as ordinary income at whatever rate applies to you that year. In a Roth IRA, may have access to withdrawals are never taxed, even though dividends accumulated inside the account tax-free.
This tax deferral is one reason retirement accounts are valuable for dividend investors. You can reinvest dividends without paying tax each year, allowing the money to compound. Outside a retirement account, you owe tax on dividends every year, even if you reinvest them.
State taxes on dividend income
Nine states do not tax dividend income at all: Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, South Dakota, Tennessee, and Texas. If you live in one of these states, you owe no state tax on dividends.
Every other state taxes dividend income, though the rate and rules vary. Some states tax dividends as ordinary income at the same rate as wages. Others have a separate, lower rate for investment income. A few states tax only certain types of dividends — for example, some tax REIT dividends but not stock dividends. Your state tax return will ask for dividend income, and your 1099-DIV will help you report it correctly.
How to report dividends on your tax return
You report dividend income on Schedule B (Interest and Ordinary Dividends) or Schedule 1 (Additional Income), depending on the total amount. If your may have access to dividends and capital gains total more than $1,500, you also file Form 8949 (Sales of Capital Assets) and Schedule D (Capital Gains and Losses).
Your brokerage sends you a Form 1099-DIV by January 31. This form shows the total ordinary dividends in box 1a and may have access to dividends in box 1b. You use these numbers to fill out your tax return. If you received dividends from multiple sources, you add them together and report the total.
If you reinvested dividends through a dividend reinvestment plan (DRIP), you still report the full dividend amount as income in the year you received it. Reinvestment does not change the tax you owe — it only changes when you receive the cash.
Frequently Asked Questions
Do I have to pay taxes on dividends if I reinvest them?
Yes. Reinvesting dividends does not change the tax you owe. You must report the full dividend amount as income in the year you received it, regardless of whether you took the cash or bought more shares. The only exception is dividends held in tax-advantaged retirement accounts, which are not taxed until you withdraw from the account.
What if my dividend income is very small?
You still report it on your tax return. There is no minimum threshold for reporting dividend income. Even $1 in dividends must be included. However, if your total income is below the filing threshold for your age and filing status, you may not be required to file a return at all — check the IRS website for current thresholds.
Can I avoid taxes on dividends by holding the stock longer?
Holding the stock longer does not reduce the tax rate, but it does determine whether the dividend qualifies for the lower rate. You must hold the stock for more than 60 days during the 121-day period centered on the ex-dividend date. Once you meet that test, the dividend is taxed at the may have access to rate (0%, 15%, or 20%) rather than your ordinary income rate, which is usually higher.
How do I know if a dividend is may have access to or nonqualified?
Your brokerage will label it on your 1099-DIV form. Box 1b shows may have access to dividends; box 1a shows ordinary (nonqualified) dividends. If you are unsure, contact your brokerage or tax preparer. The IRS Pub. 550 also contains rules for determining qualification status.