Yes, you pay taxes on non-may have access to dividends at your regular income tax rate

Non-may have access to dividends are taxed as ordinary income, which means they are added to your wages, interest, and other earnings and taxed at whatever rate applies to your total income for the year. If you are in the 22% tax bracket, non-may have access to dividends are taxed at 22%. If you are in the 37% bracket, they are taxed at 37%. This is different from may have access to dividends, which get a lower rate (0%, 15%, or 20% depending on your income).

The IRS does not separate non-may have access to dividends into their own tax category. Your brokerage or mutual fund company reports them on Form 1099-DIV, and you enter them on your tax return alongside all your other income. The tax you owe depends entirely on your total income for the year, not on the dividend itself.

Key Takeaways

  • Non-may have access to dividends are taxed as ordinary income at your full marginal tax rate, not at the preferential rates that explore to may have access to dividends.
  • Your brokerage reports non-may have access to dividends on Form 1099-DIV in Box 1b, separate from may have access to dividends in Box 1a.
  • Non-may have access to dividends are added to your other income on Form 1040, Schedule 1, and taxed at the same rate as your wages or self-employment income.
  • Common sources of non-may have access to dividends include dividends from money market funds, real estate investment trusts (REITs), and dividends paid by foreign corporations that do not meet the holding period test.

Why some dividends do not may have access to for the lower rate

A dividend is non-may have access to if it fails one of two tests: the holding period test or the ex-dividend date rule. The holding period test requires you to own the stock for at least 60 days during a 121-day window centered on the ex-dividend date. If you buy a stock on Monday and sell it on Wednesday, any dividend you receive is non-may have access to because you did not hold it long enough.

The ex-dividend date rule disqualifies dividends from certain types of securities entirely. Dividends from money market funds, bond funds, and most REITs are always non-may have access to because the underlying investments do not generate the kind of business income that Congress intended to reward with lower rates. Dividends from foreign corporations are also non-may have access to unless the corporation is incorporated in a U.S. possession or meets other specific requirements.

Some dividends are non-may have access to by design. If a company pays a dividend that exceeds its earnings for the year, the excess portion is treated as a return of capital and is non-may have access to. If you receive a dividend while you are short-selling the same stock (a bet that the price will fall), that dividend is non-may have access to because you do not have the economic risk of ownership.

How non-may have access to dividends appear on your tax return

Your brokerage sends you a Form 1099-DIV after the end of the year. Box 1a shows may have access to dividends; Box 1b shows non-may have access to dividends. You report both on Form 1040, Schedule 1, Line 5b (Ordinary Dividends). The form does not distinguish between them at this point — they are both added to your total income.

When you calculate your tax, the non-may have access to dividends are taxed at your marginal rate. If your total income (wages, self-employment, interest, non-may have access to dividends, and other sources) puts you in the 24% bracket, the non-may have access to dividends are taxed at 24%. If you are in the 35% bracket, they are taxed at 35%. There is no separate calculation or special treatment.

The may have access to dividends, by contrast, are reported on Schedule 1, Line 5a, and then transferred to Form 1040, Line 9b. They are taxed separately at the preferential rates. This is why it matters whether a dividend qualifies: a $1,000 non-may have access to dividend in the 24% bracket costs you $240 in tax, while a $1,000 may have access to dividend in the same bracket costs you $150 (at the 15% preferential rate).

Real examples of non-may have access to dividends

Suppose you own shares of a REIT that pays a 4% annual dividend. REITs are required to distribute 90% of their taxable income to shareholders, and that income comes from rent and property sales, not from corporate earnings. The dividend is non-may have access to by law, so it is taxed as ordinary income. If you receive $400 in REIT dividends and you are in the 22% bracket, you owe $88 in federal tax on that dividend alone.

Another example: you buy 100 shares of a stock on March 1 and sell them on April 15. The ex-dividend date is April 10, so you receive a dividend of $50. Because you held the stock for only 45 days, you fail the 60-day holding period test. That $50 dividend is non-may have access to and taxed at your full marginal rate, even though it came from a company that normally pays may have access to dividends.

A third example: you own a money market fund that pays 5% interest. Money market funds are not stocks, and their distributions are always non-may have access to. If the fund pays you $500 in distributions, all $500 is taxed as ordinary income. This is true even if the underlying securities in the fund are high-quality corporate bonds.

The tax cost of non-may have access to dividends versus may have access to dividends

The difference in tax rates can be substantial. The preferential rates for may have access to dividends are 0%, 15%, or 20%, depending on your income level. Ordinary income rates range from 10% to 37%. For a high-income investor in the 37% bracket, a non-may have access to dividend is taxed at 37%, while a may have access to dividend is taxed at 20% — a difference of 17 percentage points.

This is why investors sometimes avoid holding dividend-paying stocks for short periods. If you plan to sell a stock within 60 days of the ex-dividend date, the dividend you receive will be non-may have access to, and you will owe tax at your full rate. In some cases, the tax cost of the non-may have access to dividend can exceed the dividend payment itself, making the trade unprofitable.

The tax cost also matters when choosing between investment types. A REIT that pays 4% non-may have access to dividends may be less attractive than a stock that pays 2% may have access to dividends, depending on your tax bracket. A financial advisor or tax professional can help you model the after-tax return of different investments.

How to track non-may have access to dividends throughout the year

Your brokerage tracks this for you, but it is worth understanding how. When a dividend is paid, your brokerage records whether it is may have access to or non-may have access to based on the holding period and the type of security. If you sell a stock before the 60-day holding period is complete, the brokerage retroactively marks any dividend you received as non-may have access to.

Some brokerages allow you to see this information in your account dashboard or in a downloadable tax report. Others require you to wait for the Form 1099-DIV at year-end. If you trade frequently or own many dividend-paying securities, ask your brokerage whether they provide a mid-year summary of may have access to versus non-may have access to dividends. This can help you estimate your tax liability before the year ends.

If you use tax software, the software will import the Form 1099-DIV data directly from your brokerage (if you connect your account) or you can enter it manually. The software will automatically place non-may have access to dividends in the ordinary income section of your return.

What happens if your brokerage makes a mistake

Brokerages occasionally misclassify a dividend as may have access to when it should be non-may have access to, or vice versa. If you notice a discrepancy between what your brokerage reported and what you believe is correct, contact the brokerage first. They can issue a corrected Form 1099-DIV before the tax filing important date.

If you file your return based on incorrect information from your brokerage and the IRS later discovers the error, you may owe additional tax plus interest. You can file an amended return (Form 1040-X) to correct the error yourself, which is usually faster and less costly than waiting for the IRS to contact you.

Frequently Asked Questions

Can I deduct losses on non-may have access to dividends?

No. Dividends are income, and losses on the underlying stock are separate. If you buy a stock at $100, receive a $5 non-may have access to dividend, and sell the stock at $90, you have a $10 capital loss and $5 of taxable dividend income. You report both separately on your return.

Are non-may have access to dividends subject to the net investment income tax?

Yes. If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), you owe a 3.8% net investment income tax on non-may have access to dividends along with other investment income. This is in addition to your regular income tax.

What if I receive a non-may have access to dividend from a foreign stock?

Non-may have access to dividends from foreign corporations are taxed as ordinary income at your marginal rate. You may also be subject to foreign withholding tax, which your brokerage deducts before paying you. You can claim a foreign tax credit on your return for taxes withheld.

Do I have to report non-may have access to dividends if they are under $10?

No minimum threshold exists for reporting. If you receive even $1 in non-may have access to dividends, it must be reported on your tax return. However, your brokerage will only send you a Form 1099-DIV if dividends and other reportable income total $10 or more. If you receive less than $10, you still report it based on your brokerage statements.

Can I avoid non-may have access to dividends by timing my stock purchases?

Yes, if you plan ahead. If you know a stock will pay a dividend soon and you do not want to hold it long-term, you can wait until after the ex-dividend date to buy it. This way you avoid the dividend entirely and do not have to worry about the holding period test.