may have access to dividends get a tax break that ordinary dividends and most other income do not
may have access to dividends are taxed at the long-term capital gains rate, which is lower than the ordinary income tax rate you pay on wages, interest, or non-may have access to dividends. The exact rate depends on your total income for the year and your filing status. For most people, that means 0%, 15%, or 20% — compared to ordinary income rates that can go as high as 37%.
The IRS created this lower rate to encourage long-term investing. To get it, you have to meet two conditions: the company paying the dividend must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you have to hold the stock for a minimum number of days around the payment date. If either condition fails, the dividend is taxed as ordinary income instead.
Your brokerage or mutual fund company reports which dividends are may have access to on Form 1099-DIV, which you receive by January 31 each year. You then transfer those numbers to Schedule B and Form 1040 when you file your tax return.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income level, while ordinary income can be taxed at rates up to 37%.
- To may have access to for the lower rate, you must hold the stock for at least 60 days during a 121-day window centered on the ex-dividend date.
- Your brokerage reports may have access to versus non-may have access to dividends on Form 1099-DIV, which you use when filing your return.
- Dividends from certain investments — including money market funds, bonds, and foreign stocks not traded in the U.S. — are always taxed as ordinary income.
The three tax rates for may have access to dividends and who pays each one
The rate you pay on may have access to dividends is determined by your taxable income for the year, not by how much dividend income you received. The IRS stacks may have access to dividends on top of your other income and applies the rate that matches your total.
The 0% rate applies if your taxable income falls below a threshold that depends on your filing status. For 2024, that threshold is $47,025 for single filers, $94,050 for married filing jointly, and $63,000 for head of household. If your total taxable income stays below that line, your may have access to dividends are taxed at 0%.
The 15% rate applies to may have access to dividends that fall between the 0% threshold and a higher threshold. For 2024, that upper limit is $518,900 for single filers, $583,750 for married filing jointly, and $551,350 for head of household. Most dividend-paying investors fall into this bracket.
The 20% rate applies to may have access to dividends above those thresholds. This rate also applies to high-income earners, and it is paired with an additional 3.8% net investment income tax for taxpayers above certain income levels, bringing the effective rate to 23.8% for some.
The holding period rule: when you own the stock matters
To receive the lower tax rate, you must own the stock for a minimum holding period around the dividend payment date. Specifically, you must hold the stock for at least 60 days during a 121-day window that begins 60 days before the ex-dividend date and ends 60 days after it.
The ex-dividend date is the cutoff set by the stock exchange. If you own the stock on the ex-dividend date, you receive the dividend. If you buy the stock on or after the ex-dividend date, you do not receive that particular dividend — the previous owner does. This date is published by your brokerage and by the company paying the dividend.
The 121-day window is centered on the ex-dividend date to prevent investors from buying stock just before the dividend and selling it when ready after. If you hold the stock for fewer than 60 days in that window, the dividend is taxed as ordinary income. Days you do not own the stock do not count toward the 60-day requirement.
This rule applies separately to each dividend payment. You could own one stock long enough to may have access to for one dividend but not another, or own two different stocks with different holding periods. Your brokerage tracks this and reports the results on Form 1099-DIV.
Which dividends never may have access to for the lower rate
Some dividends are always taxed as ordinary income, regardless of how long you hold the stock. These include dividends from money market funds, bond funds, and real estate investment trusts (REITs). Dividends from foreign stocks are also taxed as ordinary income unless the stock is traded on a U.S. exchange and meets other conditions.
Dividends paid by certain tax-exempt organizations, including credit unions and mutual insurance companies, are also non-may have access to. If you receive a dividend from a company you know is foreign-based and not traded in the U.S., assume it is taxed as ordinary income unless your brokerage specifically marks it as may have access to on Form 1099-DIV.
Some companies pay dividends in the form of additional shares of stock rather than cash. These are called stock dividends. If the stock dividend is not taxable in the year you receive it (meaning the company did not give you a choice between cash and stock), it is not reported as dividend income at all. If it is taxable, it is usually taxed as ordinary income.
How to report may have access to dividends on your tax return
Your brokerage sends you Form 1099-DIV by January 31 each year. This form lists your dividends in separate boxes: Box 1a shows total ordinary dividends, and Box 1b shows may have access to dividends. The form also breaks down other types of income like capital gains and return of capital.
You report may have access to dividends on Schedule B (Interest and Ordinary Dividends) if your total dividends and interest exceed $1,500, or on Form 1040 directly if they do not. The may have access to dividend amount then transfers to Form 8949 (Sales of Capital Assets) or directly to the may have access to Dividends and Capital Gain Tax Worksheet, which calculates your tax at the lower rate.
If you use tax software, it usually imports the Form 1099-DIV data automatically and places the may have access to dividend amount in the correct location. If you file by hand, copy the may have access to dividend amount from Box 1b of Form 1099-DIV to the appropriate line on your return. Do not report may have access to dividends as ordinary income — the lower rate applies only if you report them in the correct place.
If your brokerage made an error and marked a dividend as may have access to when it should not be, or vice versa, you can correct it when you file. Attach a statement explaining the correction and file Form 8949 or Schedule D to show the adjustment. Keep documentation of the holding period and ex-dividend date to support your claim.
What happens if you do not meet the holding period requirement
If you sell the stock or do not hold it long enough around the ex-dividend date, the dividend is reclassified as ordinary income. This means it is taxed at your regular income tax rate instead of the capital gains rate. For someone in the 24% or 32% tax bracket, this can significantly increase the tax owed on that dividend.
Some investors use a strategy called dividend capture, where they buy stock just before the ex-dividend date to collect the dividend, then sell it when ready after. The IRS disallows the lower rate for these dividends because the holding period is not met. If you engage in this pattern repeatedly, the IRS may challenge your return.
Your brokerage tracks the holding period automatically and reports the result on Form 1099-DIV. If you bought and sold the same stock multiple times in a year, the brokerage calculates which dividends meet the 60-day requirement and which do not. You do not have to do this calculation yourself, but you should verify the Form 1099-DIV is correct before filing.
Frequently Asked Questions
Do I have to hold the stock for a full year to get the lower tax rate?
No. You only need to hold the stock for at least 60 days during a 121-day window centered on the ex-dividend date. You can own the stock for just a few months and still receive the lower rate, as long as you meet the 60-day requirement around that specific dividend payment date.
What if I own the stock through a mutual fund or ETF?
The mutual fund or ETF holds the underlying stock, not you. The fund receives the dividend and passes it to you. The fund's holding period determines whether the dividend is may have access to, not your holding period of the fund shares. Your Form 1099-DIV will show which dividends the fund received as may have access to.
Can I deduct losses on dividend-paying stocks to offset the tax?
Yes, but only if you actually sold the stock at a loss. You cannot deduct a loss just because the stock price fell. If you sell at a loss, that loss can offset capital gains and up to $3,000 of ordinary income in the current year, with any excess carried forward to future years.
Are dividends from my employer's stock plan taxed as may have access to dividends?
Only if the stock meets the definition of a may have access to dividend — it must be from a U.S. corporation or a foreign corporation traded on a U.S. exchange, and you must meet the holding period. Employee stock purchase plans and restricted stock units have their own rules; consult Form 1099-DIV or your plan administrator to confirm the tax treatment.
What if my brokerage reports a dividend as may have access to but I do not think I held it long enough?
Contact your brokerage and ask them to verify the holding period calculation. If they made an error, ask for a corrected Form 1099-DIV. If you disagree with their calculation, keep records of your purchase and sale dates and report the dividend as ordinary income on your return, attaching a statement explaining the adjustment.