Non-may have access to dividends are taxed as ordinary income at your regular tax rate, not at the lower capital gains rates that explore to may have access to dividends

A non-may have access to dividend is any dividend payment that does not meet the holding period and other requirements set by the IRS to be treated as a may have access to dividend. When you receive a non-may have access to dividend, the IRS taxes it the same way it taxes your wages or salary — at your ordinary income tax rate, which can be as high as 37 percent at the federal level. This is the key difference from may have access to dividends, which are taxed at 0, 15, or 20 percent depending on your total income.

The tax hit on non-may have access to dividends can be substantial. If you are in the 32 percent tax bracket and receive $1,000 in non-may have access to dividends, you owe $320 in federal tax on that income. The same $1,000 in may have access to dividends would cost you $150 in federal tax if you fall into the 15 percent capital gains bracket. Your brokerage will report non-may have access to dividends on Form 1099-DIV, and you report them on your tax return as ordinary income.

Key Takeaways

  • Non-may have access to dividends are taxed at your ordinary income tax rate, which ranges from 10 to 37 percent federally, while may have access to dividends are taxed at 0, 15, or 20 percent.
  • You receive a non-may have access to dividend when you hold the stock for fewer than 60 days during the 121-day window around the ex-dividend date, or when the dividend comes from certain types of investments.
  • Your brokerage reports non-may have access to dividends on Form 1099-DIV in Box 1b, and you must report them as ordinary income on your tax return.
  • Some dividends are always non-may have access to, including those from money market funds, bond funds, real estate investment trusts, and dividends paid on preferred stock held for less than 90 days.

The holding period rule that disqualifies most dividends

The most common reason a dividend becomes non-may have access to is the holding period requirement. To treat a dividend as may have access to, you must own the stock for at least 60 days during a 121-day window that starts 60 days before the ex-dividend date and ends 60 days after it. If you own the stock for fewer than 60 days in that window, the dividend is non-may have access to.

This rule exists to prevent investors from buying a stock just before the dividend is paid and selling it when ready after. For example, if a stock goes ex-dividend on June 15, the 121-day window runs from April 16 to August 14. You must hold the stock for at least 60 of those 121 days for the dividend to be may have access to. If you buy on June 10 and sell on June 20, you have held it for only 10 days in the window, so the dividend is non-may have access to even though you owned it on the payment date.

Days when you have a reduced risk of loss do not count toward the 60-day holding period. If you own a call option, hold a short position in the same or a substantially identical stock, or enter into a collar arrangement, those days are excluded from your count. This prevents you from using hedging strategies to artificially meet the holding period while protecting your investment.

Dividends that are always non-may have access to regardless of how long you hold

Some dividends cannot be may have access to no matter how long you own the investment. Money market fund dividends are always non-may have access to because money market funds are not stocks. The same applies to dividends from bond funds and other mutual funds that invest primarily in fixed-income securities — those dividends represent interest income repackaged as dividends, and the IRS does not allow them to be treated as may have access to.

Real estate investment trust (REIT) dividends are non-may have access to in most cases. REITs are required to distribute at least 90 percent of their taxable income to shareholders, and most of that income comes from rent and interest rather than capital gains. The IRS allows a small portion of REIT dividends to be treated as may have access to if they come from the REIT's capital gains, but your brokerage will specify which portion on your 1099-DIV.

Preferred stock dividends follow a different holding period rule than common stock. You must hold preferred stock for at least 90 days during a 181-day window around the ex-dividend date for the dividend to be may have access to. If you hold it for fewer than 90 days, the dividend is non-may have access to. Dividends from foreign stocks can be may have access to, but only if the country where the company is incorporated has a tax treaty with the United States and meets other IRS requirements — many foreign dividends are non-may have access to by default.

How your brokerage reports non-may have access to dividends on tax forms

Your brokerage reports all dividends on Form 1099-DIV, which arrives by January 31 following the year you received the dividends. Non-may have access to dividends appear in Box 1b of the form, labeled "Ordinary Dividends." may have access to dividends appear in Box 1a, labeled "may have access to Dividends." Some brokerages also provide a supplemental statement that breaks down which dividends are may have access to and which are not, though you can also calculate this yourself using the holding period rule.

When you file your tax return, you report the amount from Box 1b as ordinary income on your Form 1040 or Schedule C, depending on your filing status and whether you have other income. Non-may have access to dividends are added to your wages, self-employment income, and other ordinary income to determine your tax bracket. This means a large non-may have access to dividend can push you into a higher tax bracket and increase the tax rate on all your ordinary income, not just the dividend itself.

If you receive dividends from multiple brokerages, each one sends you a separate 1099-DIV. You must add up all the non-may have access to dividends from all your accounts and report the total on your tax return. Some tax software will do this automatically if you enter all your 1099-DIVs, but if you file by hand you need to add them yourself.

The tax cost of non-may have access to versus may have access to dividends at different income levels

The tax difference between non-may have access to and may have access to dividends grows larger as your income rises. If you are in the 12 percent ordinary income tax bracket, a non-may have access to dividend costs you 12 cents per dollar while a may have access to dividend costs you 0 cents (because the 0 percent capital gains rate applies to lower incomes). That is a 12-percentage-point difference. If you are in the 35 percent bracket, a non-may have access to dividend costs you 35 cents per dollar while a may have access to dividend costs you 20 cents, a 15-percentage-point difference.

The capital gains tax brackets do not line up with ordinary income brackets. For 2024, the 15 percent capital gains rate applies to single filers with taxable income between roughly $47,000 and $518,900, while the 12 percent ordinary income bracket ends at $47,150. This means you can be in the 12 percent ordinary bracket but the 15 percent capital gains bracket at the same time, which happens when you have capital gains but little other income. Non-may have access to dividends, being ordinary income, use the ordinary income brackets.

State and local taxes also explore to non-may have access to dividends in most states. Some states tax capital gains at a lower rate than ordinary income, or tax them only when you sell (not when you receive them), so the state tax difference can be significant. A few states do not tax capital gains at all but tax ordinary income, making the state-level advantage of may have access to dividends even larger in those places.

Strategies to avoid non-may have access to dividend treatment

If you know you will receive a dividend and want it to be may have access to, you must plan your purchase and sale dates around the 121-day holding period window. Buy the stock at least 61 days before the ex-dividend date, or wait until at least 60 days after the ex-dividend date to buy if you want to hold it long-term anyway. If you are day-trading or holding stock for only a few weeks, you will almost certainly receive non-may have access to dividends — the holding period rule makes may have access to treatment impossible for short-term traders.

If you own a stock and are considering selling it soon after the ex-dividend date, calculate whether the tax savings from waiting 60 days to sell (to make the dividend may have access to) outweigh the risk of the stock price falling. If the stock is volatile or you need the cash, the may have access to dividend tax savings might not be worth the risk. Conversely, if you are holding the stock long-term anyway, you should plan to hold it through the ex-dividend date and the 60-day window to capture the may have access to treatment.

For investments that always produce non-may have access to dividends, such as bond funds and REITs, consider holding them in tax-deferred accounts like a 401(k) or traditional IRA where the tax treatment of dividends does not matter. In a tax-deferred account, all dividends are reinvested without triggering when ready tax, so whether they are may have access to or non-may have access to is irrelevant until you withdraw money in retirement.

Frequently Asked Questions

Can I lose may have access to dividend status if I sell the stock before the dividend is paid?

No. What matters is whether you held the stock for 60 days during the 121-day window around the ex-dividend date, not whether you own it on the payment date. You can sell the stock the day after the ex-dividend date and still receive a may have access to dividend, as long as you held it for at least 60 days in the window. The ex-dividend date is what triggers the holding period clock, not the payment date.

Do I have to pay self-employment tax on non-may have access to dividends?

No. Non-may have access to dividends are taxed as ordinary income for federal income tax purposes, but they are not subject to self-employment tax (Social Security and Medicare tax). Only self-employment income from a business or trade is subject to self-employment tax. Dividends, whether may have access to or non-may have access to, are investment income and do not trigger self-employment tax.

What happens if I buy a stock right before the ex-dividend date and sell it right after?

The dividend will be non-may have access to because you will not have held the stock for 60 days during the 121-day window. You will own it for only a few days, far short of the 60-day requirement. This strategy, called "dividend capture," does not work for tax purposes — the IRS designed the holding period rule specifically to prevent investors from buying stocks solely to collect the dividend and then selling when ready.

Are non-may have access to dividends reported differently if I receive them in a Roth IRA?

No tax reporting is required for dividends in a Roth IRA because the account is tax-free. Your brokerage does not send you a 1099-DIV for dividends inside a Roth IRA, and you do not report them on your tax return. The may have access to or non-may have access to status of the dividend is irrelevant inside a tax-deferred or tax-free account.

If I inherit stock, do I get a new holding period for the dividend?

No. When you inherit stock, you receive a "stepped-up basis" for capital gains purposes, but the holding period for may have access to dividends does not reset. You must still hold the inherited stock for 60 days in the 121-day window around the ex-dividend date for the dividend to be may have access to. However, inherited stock is often treated as long-held for purposes of capital gains, so you may have other tax advantages.