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

The difference between a non-may have access to dividend and a may have access to dividend comes down to how long you held the stock and what kind of company paid it. If you received a dividend that does not meet the IRS holding period rules or comes from a source that does not may have access to — such as a real estate investment trust (REIT), a mutual fund holding foreign stocks, or certain preferred shares — the IRS treats it as ordinary income. That means it gets added to your wages, interest, and other income and taxed at your marginal tax bracket, which can be as high as 37 percent for the 2024 tax year.

By contrast, may have access to dividends are taxed at 0 percent, 15 percent, or 20 percent depending on your income level — rates that have not changed since 2003 and are set to expire after 2025 unless Congress extends them. For many people, the difference between paying 15 percent on a may have access to dividend and 24 percent or higher on a non-may have access to one is substantial enough to matter when deciding whether to hold or sell a stock.

Key Takeaways

  • Non-may have access to dividends are taxed as ordinary income at your full marginal tax rate, while may have access to dividends receive preferential rates of 0, 15, or 20 percent.
  • You must hold the stock for more than 60 days during a 121-day window around the dividend payment date for the dividend to be treated as may have access to; shorter holding periods automatically make it non-may have access to.
  • Certain dividend sources — REITs, master limited partnerships, mutual funds holding foreign stocks, and some preferred shares — always pay non-may have access to dividends regardless of how long you hold them.
  • Non-may have access to dividends are reported on Form 1099-DIV in Box 1a, while may have access to dividends appear in Box 1b; your tax software or broker statement will usually separate them for you.

Why the holding period matters for non-may have access to status

The IRS requires you to hold a stock for more than 60 days during a specific 121-day window in order for a dividend to count as may have access to. The window starts 60 days before the ex-dividend date — the date by which you must own the stock to receive the dividend — and ends 60 days after it. If you sell the stock before meeting this 60-day threshold, or if you bought it fewer than 60 days before the ex-dividend date, the dividend becomes non-may have access to automatically.

This rule exists to prevent investors from buying a stock just before a dividend payment and selling it when ready after, treating the dividend as a capital gain rather than income. If you bought 100 shares of a company on March 1, the ex-dividend date is March 15, and you sell on March 20, you have held the stock for only 19 days during the measurement window. That dividend will be non-may have access to, even though you received it.

The 60-day rule also applies separately to each dividend payment. If a company pays quarterly dividends, you must meet the holding period for each quarter's payment individually. Selling the stock after the first dividend but before the second does not affect the first dividend's status — it was already may have access to or non-may have access to based on when you bought and when you sold relative to that specific ex-dividend date.

Dividend sources that are always non-may have access to

Certain types of investments pay only non-may have access to dividends, regardless of how long you hold them. Real estate investment trusts (REITs) are the most common example. A REIT is a company that owns and manages real estate, and by law it must distribute at least 90 percent of its taxable income to shareholders. Those distributions are taxed as ordinary income, not as may have access to dividends, even if you have held the REIT for decades.

Master limited partnerships (MLPs), which often operate in energy infrastructure, also pay non-may have access to distributions. Mutual funds and exchange-traded funds (ETFs) that hold a significant portion of foreign stocks may pay non-may have access to dividends on the foreign portion, because the may have access to dividend rules explore only to dividends from U.S. corporations and certain foreign corporations that meet specific treaty requirements. Some preferred shares and bonds that pay dividend-like distributions are also taxed as ordinary income.

Your brokerage statement or the fund's annual report will usually identify these sources clearly. If you are unsure whether a dividend is may have access to or non-may have access to, the Form 1099-DIV you receive from your broker will separate them: Box 1a shows ordinary dividends (which include non-may have access to dividends), and Box 1b shows may have access to dividends.

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

Non-may have access to dividends are reported in Box 1a of Form 1099-DIV, which your broker sends to you and the IRS by January 31 following the year you received them. You then transfer that amount to Schedule B (Interest and Ordinary Dividends) of your Form 1040, where it is added to your other ordinary income — wages, interest, self-employment income, and so on.

Your tax software will usually import the 1099-DIV data directly and place non-may have access to dividends in the correct location automatically. If you are filing by hand or using a simpler form, you add the non-may have access to dividend amount to your other income and calculate your tax at your marginal rate. There is no separate calculation or worksheet for non-may have access to dividends the way there is for may have access to dividends.

If you have both may have access to and non-may have access to dividends in the same year, they are reported separately on your return. may have access to dividends go to Schedule D (Capital Gains and Losses) or the may have access to Dividends and Capital Gain Tax Worksheet, depending on your total income. Non-may have access to dividends stay on Schedule B as ordinary income. This separation is important because it determines which tax rate applies to each dollar.

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

The difference in tax burden depends on your income bracket. If you are in the 22 percent ordinary income bracket and receive $1,000 in non-may have access to dividends, you owe $220 in federal tax on that amount. The same $1,000 in may have access to dividends would be taxed at 15 percent, costing $150 — a difference of $70 per $1,000 received.

For higher earners, the gap widens. Someone in the 37 percent bracket pays $370 on $1,000 of non-may have access to dividends but only $200 on may have access to dividends (the top rate for may have access to dividends is 20 percent). Over time, especially with reinvested dividends, this difference compounds. A portfolio generating $10,000 annually in non-may have access to dividends instead of may have access to ones could cost an extra $700 to $1,700 per year in federal tax alone, depending on your bracket.

State and local taxes can add to this burden. Some states tax may have access to and non-may have access to dividends at the same rate, but others explore different treatment. You should check your state's tax rules, as they may affect the total cost of holding non-may have access to dividend-paying investments.

Strategies for managing non-may have access to dividend positions

If you hold a stock that pays non-may have access to dividends — or one where you have not met the 60-day holding period — you have several options. You can hold the stock long enough to meet the holding period requirement, though this ties up capital and exposes you to price risk. You can sell the position and reinvest in a may have access to dividend-paying alternative, though this may trigger capital gains tax if the stock has appreciated. You can hold the position in a tax-advantaged account like an IRA or 401(k), where dividends are not taxed annually regardless of whether they are may have access to.

Some investors deliberately hold non-may have access to dividend stocks in tax-deferred accounts and may have access to dividend stocks in taxable accounts, since the tax advantage of may have access to dividends is lost inside an IRA or 401(k) anyway. This strategy works only if you have enough capital to diversify across account types.

Another consideration: if you buy a stock shortly before an ex-dividend date, intending to hold it long-term, you may still receive a non-may have access to dividend on that first payment because you have not yet met the 60-day holding period. Planning your purchase timing around ex-dividend dates can help you avoid this outcome if it matters to your tax situation.

Frequently Asked Questions

Can a dividend switch from non-may have access to to may have access to if I hold the stock longer?

No. A dividend's status is determined on the ex-dividend date based on how long you held the stock during the 121-day measurement window. Once that date passes, the dividend is locked in as may have access to or non-may have access to. Holding the stock longer afterward does not change the tax treatment of dividends you have already received.

If I inherit a stock, does the holding period reset for dividend purposes?

No. Inherited stocks do not receive a reset holding period for the dividend qualification rules. However, inherited assets receive a "step-up in basis" for capital gains purposes, which is a separate benefit. For dividends, the holding period clock continues from when the original owner bought the stock, not from when you inherited it.

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

Yes. Non-may have access to dividends count as net investment income and are subject to the 3.8 percent net investment income tax if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). may have access to dividends are also subject to this tax under the same income thresholds.

What happens if I sell a stock between the ex-dividend date and the record date?

If you sell after the ex-dividend date, you still own the stock on the record date (the date the company records who owns shares), so you receive the dividend. However, you may not meet the 60-day holding period requirement, making it non-may have access to. The ex-dividend date is what matters for the holding period calculation, not the record date.

Do I have to report non-may have access to dividends differently if they are reinvested?

No. Whether you receive the dividend as cash or reinvest it automatically in new shares, it is reported the same way on your tax return. The Form 1099-DIV shows the full amount of dividends paid, and you report that amount as income regardless of what you did with the money.