may have access to dividends are stock payouts that meet IRS holding-period rules and get taxed at lower rates than ordinary income

A may have access to dividend is money a company pays you for owning its stock, and the IRS taxes it at a preferential rate — usually 0%, 15%, or 20% depending on your income level — rather than at your ordinary income tax rate, which can be as high as 37%. The difference matters: if you earn $100,000 and receive $1,000 in may have access to dividends, that $1,000 might be taxed at 15% instead of 24%, saving you $90.

The catch is that not every dividend payment qualifies. The company must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you must have held the stock for a specific number of days before and after the dividend payment date. If you don't meet those rules, the dividend counts as ordinary income and gets taxed at your regular rate.

Your brokerage account will report may have access to and non-may have access to dividends separately 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. Understanding which dividends may have access to saves you from overpaying tax and helps you make smarter decisions about when to buy and sell stock.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% based on your total income, while non-may have access to dividends use your ordinary tax bracket, which is usually higher.
  • You must hold the stock for at least 60 days within a 121-day window centered on the ex-dividend date for the dividend to count as may have access to.
  • The company paying the dividend must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange.
  • Your brokerage reports may have access to and non-may have access to dividends separately on Form 1099-DIV, and you report both on your tax return.

The holding-period rule that determines whether a dividend qualifies

The IRS requires you to hold the stock for a minimum number of days to treat a dividend as may have access to. Specifically, you must own the stock for more than 60 days during a 121-day period that starts 60 days before the ex-dividend date — the date on which new buyers no longer receive the upcoming dividend payment.

Here is how the window works in practice: if a company announces an ex-dividend date of June 15, the 121-day window runs from April 16 to September 14. You must hold the stock for at least 61 of those 121 days. If you bought the stock on May 1 and sold it on July 1, you held it for 31 days within the window — not enough. If you bought on May 1 and held until August 15, you held it for 107 days within the window — that qualifies.

Days you do not own the stock do not count toward the holding period. If you owned the stock, sold it, and bought it back, the IRS treats those as separate holdings. Holding periods also reset if you use certain hedging strategies like buying put options or short-selling the same stock, which the IRS views as reducing your economic risk.

Tax rates for may have access to dividends based on your income level

The tax rate on may have access to dividends depends on your total taxable income for the year, not on the dividend amount itself. The IRS sets three brackets: 0%, 15%, and 20%. These brackets change each year and differ based on whether you file as single, married filing jointly, head of household, or another status.

For 2024, if you file as single and your taxable income falls below $47,025, your may have access to dividends are taxed at 0%. Income from $47,025 to $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%. If you file as married filing jointly, the 0% bracket extends to $94,050, the 15% bracket to $583,750, and anything above that is 20%.

These brackets are separate from your ordinary income brackets. If you earn $60,000 in wages and receive $5,000 in may have access to dividends, the IRS first applies your ordinary income tax rate to the $60,000, then applies the may have access to dividend rate to the $5,000 based on where your total income ($65,000) falls. The brackets overlap, so your may have access to dividends may be taxed partly at 0% and partly at 15% if your total income straddles a threshold.

Why non-may have access to dividends cost you more in taxes

Non-may have access to dividends — also called ordinary dividends — are taxed as ordinary income at your regular tax bracket, which ranges from 10% to 37% depending on your income level. For most taxpayers, this rate is significantly higher than the 0%, 15%, or 20% rate on may have access to dividends.

A dividend becomes non-may have access to if you fail the holding-period test, if the paying company is not a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, or if the dividend is from certain types of investments like money market funds, bonds, or real estate investment trusts (REITs). Some dividends from foreign corporations also count as non-may have access to unless the stock is traded on a U.S. exchange.

The tax difference adds up quickly. If you are in the 24% ordinary income bracket and receive $10,000 in non-may have access to dividends, you owe $2,400 in federal tax. The same $10,000 in may have access to dividends would be taxed at 15%, costing $1,500 — a $900 difference. This is why investors sometimes hold stock longer before selling to capture the may have access to dividend rate.

How your brokerage reports dividends on Form 1099-DIV

Your brokerage or investment firm sends you a Form 1099-DIV by January 31 each year, listing all dividends you received during the previous year. The form separates may have access to dividends (reported in Box 1b) from non-may have access to dividends (reported in Box 1a). If you received dividends from multiple companies, the form totals them by type.

Box 1a shows ordinary dividends, which are taxed at your regular income tax rate. Box 1b shows may have access to dividends, which are taxed at the preferential 0%, 15%, or 20% rate. Some brokerages also provide supplemental information showing which specific dividend payments may have access to and which did not, though this detail is optional.

If you own stock in multiple accounts or through multiple brokerages, you will receive a separate Form 1099-DIV from each one. You must add up all the may have access to dividends from all forms and report the total on your tax return. The same applies to non-may have access to dividends. If you received less than $10 in dividends from a particular company, the brokerage may not send a separate form, but you still must report the income.

Reporting may have access to dividends on your tax return

You report may have access to dividends on Schedule B (Interest and Ordinary Dividends) and then transfer the totals to Form 1040. Start by listing each Form 1099-DIV you received, showing the company name and the dividend amount. If you received dividends from more than 10 companies, you can attach a statement listing the additional ones instead of writing them all on Schedule B.

On Schedule B, Part II, you enter your total may have access to dividends in the box labeled "may have access to dividends." This amount then goes to Form 1040, line 5b, which is specifically for may have access to dividends. Your ordinary dividends go to line 5a. The IRS uses these separate lines to calculate your tax at the correct rate.

If you use tax software, the program will ask you to enter the amounts from your Form 1099-DIV forms, and it will automatically place may have access to dividends in the right location. If you file by hand, double-check that you are putting may have access to dividends on line 5b and ordinary dividends on line 5a, because putting them in the wrong place will result in overpaying tax.

Common mistakes that cost you money on may have access to dividends

The most frequent error is selling stock too soon after buying it and losing the may have access to dividend rate. If you buy stock on June 1 to capture a dividend with an ex-date of June 15, but sell on June 20, you have held the stock for only 19 days within the 121-day window — far short of the 61-day requirement. The dividend becomes non-may have access to, and you owe tax at your ordinary rate instead of the preferential rate.

Another common mistake is misreporting the dividend type on your tax return. Some taxpayers enter all dividends on line 5a (ordinary dividends) instead of separating may have access to dividends onto line 5b. This causes the entire dividend amount to be taxed at your ordinary income rate, which can be 9 percentage points higher than the may have access to rate. Tax software usually prevents this error, but hand-filers should verify the placement.

A third mistake is forgetting to account for the ex-dividend date when calculating your holding period. The holding period does not start on the date you buy the stock — it starts 60 days before the ex-dividend date. If you are unsure of the ex-dividend date, check your brokerage statement or the company's investor relations website. Your brokerage will also report on Form 1099-DIV which dividends it treated as may have access to, so you can verify the calculation.

Frequently Asked Questions

Can I get the may have access to dividend rate if I own stock in a foreign company?

Only if the foreign company's stock is traded on a U.S. exchange, such as the New York Stock Exchange or NASDAQ. If you own shares in a foreign company that trades only on a foreign exchange, the dividend is taxed as ordinary income regardless of how long you hold it. Check your brokerage statement or the company's website to confirm where the stock trades.

What happens to my holding period if I sell covered calls on the stock?

Selling a covered call (an options contract that gives someone else the right to buy your stock at a set price) does not affect your holding period for the dividend itself, but it can disqualify the dividend if the call is "deep in the money" or if you sell it too close to the ex-dividend date. The safest approach is to avoid selling calls within 60 days before the ex-dividend date if you want to keep the may have access to rate.

Do REITs and bond funds pay may have access to dividends?

No. Dividends from real estate investment trusts (REITs) and bond funds are always taxed as ordinary income, even if you hold them for years. Some REIT dividends may be reported as return of capital, which is taxed differently, but the may have access to dividend rate does not explore to any REIT or bond fund distribution.

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 tax purposes, but you do not inherit the previous owner's holding period. You must meet the 60-day holding requirement yourself to treat any future dividends as may have access to. However, if the ex-dividend date has already passed before you inherit the stock, you are not may have access to to that dividend anyway.

Can I deduct investment losses against may have access to dividends?

Yes, but only up to $3,000 per year. Capital losses first offset capital gains, and any remaining loss can offset up to $3,000 of ordinary income, including dividends. Losses beyond $3,000 carry forward to future years. This is a general rule for all income types, not specific to may have access to dividends.