The core difference: tax rate and holding period

Ordinary dividends are taxed at your regular income tax rate — the same rate that applies to your salary or wages. may have access to dividends are taxed at a lower rate that applies only to long-term capital gains. The difference can mean paying 15 or 20 percentage points less tax on the same dollar amount.

The IRS does not decide which dividends are may have access to. Your brokerage or the company paying the dividend tells you the category on the tax forms they send you. What makes a dividend may have access to is whether you held the stock long enough. For most dividends, you must have owned the shares for more than 60 days during the 121-day window centered on the ex-dividend date — the date the company sets as the cutoff for who receives the payment.

If you do not meet the holding period, the dividend is ordinary, even if the company calls it a dividend. If you sell the stock before the 60-day window closes, you lose the may have access to status retroactively.

Key Takeaways

  • Ordinary dividends are taxed at your income tax bracket rate, which ranges from 10% to 37% depending on your income; may have access to dividends are taxed at 0%, 15%, or 20% depending on your income level.
  • To may have access to for the lower rate, you must own the stock for more than 60 days within a 121-day period centered on the ex-dividend date set by the company.
  • Your brokerage reports which dividends are ordinary and which are may have access to on Form 1099-DIV, which you receive by January 31 each year.
  • Selling the stock before you meet the 60-day holding period removes the may have access to status, even if you already received the dividend payment.

How the tax rates actually work

The tax you owe on a may have access to dividend depends on your total taxable income for the year, not the dividend amount alone. The IRS sets three brackets for may have access to dividends: 0%, 15%, and 20%. Your income determines which bracket you fall into.

For 2024, the 0% bracket applies to single filers with taxable income up to $47,025 and married filers filing jointly up to $94,050. The 15% bracket covers income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Anything above that is taxed at 20%. These numbers change each year with inflation.

Ordinary dividends do not get their own brackets. They are added to your other income and taxed at whatever rate applies to that total. If you earn $60,000 in wages and receive $5,000 in ordinary dividends, you owe tax on $65,000 at your regular income tax rates — potentially 12% or 22% depending on your filing status.

The same $5,000 in may have access to dividends would be taxed separately at 0%, 15%, or 20%, which is why the difference matters. A person in the 22% ordinary income bracket who receives may have access to dividends pays 15% on those dividends instead — a 7-percentage-point savings.

Why the holding period exists and how to track it

The 60-day holding requirement prevents people from collecting a dividend and when ready selling the stock to lock in a gain while paying capital gains rates on the dividend. Without the rule, a dividend would function like a capital gain even though the company earned the money and distributed it to shareholders.

The 121-day window runs from 60 days before the ex-dividend date to 60 days after it. The ex-dividend date is the date set by the company — not the date you receive the payment. If you buy the stock one day after the ex-dividend date, you have 60 days to hold it. If you buy it one day before, you have 120 days. Your brokerage statement shows the ex-dividend date for each dividend you receive.

You must hold the stock continuously during this period. If you sell it and buy it back, the holding period resets. If you own the stock through a dividend reinvestment plan (DRIP) that automatically buys new shares with the dividend payment, those new shares have their own 60-day holding period starting from when they are purchased, not from the original ex-dividend date.

Your brokerage tracks this automatically and reports the result on Form 1099-DIV. You do not have to calculate it yourself, but understanding the rule helps you avoid accidentally disqualifying dividends by selling too soon.

Special cases: preferred stock, mutual funds, and REITs

Preferred stock dividends follow the same 60-day rule as common stock, but the holding period is longer for some preferred shares. If the preferred stock is convertible into common stock, you must hold it for more than 90 days during a 181-day window. Your brokerage will report which rate applies.

Mutual funds and exchange-traded funds (ETFs) distribute dividends that may be may have access to or ordinary depending on what stocks the fund holds and how long the fund held them. The fund manager does the holding; you only need to hold the fund shares for 60 days around the ex-dividend date. The fund reports the breakdown on Form 1099-DIV.

Real Estate Investment Trusts (REITs) almost never pay may have access to dividends. REIT dividends are taxed as ordinary income even if you hold the shares for years. This is a fixed rule, not based on holding period. Some REIT distributions are return of capital, which reduces your cost basis instead of being taxed as income — your 1099-DIV will specify which type each distribution is.

What Form 1099-DIV tells you and where to report it

Your brokerage sends Form 1099-DIV by January 31 each year. Box 1a shows ordinary dividends; Box 1b shows may have access to dividends. If both boxes have amounts, you received both types during the year. The form also breaks out capital gain distributions (Box 2a through 2d), which are taxed as long-term capital gains regardless of how long you held the fund.

You report ordinary dividends on Schedule B (Interest and Ordinary Dividends) if your total is over $1,500, or directly on Form 1040 if it is $1,500 or less. may have access to dividends go on Schedule D (Capital Gains and Losses) along with any capital gains you realized from selling stock. The IRS uses Schedule D to calculate your capital gains tax rate.

If your brokerage reports a dividend as ordinary but you believe it should be may have access to, you can correct it on your return. Attach a statement explaining why and provide the ex-dividend date and your purchase and sale dates. This is rare — brokerages are required to track this and usually get it right — but it can happen if you bought or sold shares around the ex-dividend date and the timing was close.

How this affects your overall tax bill

The tax savings from may have access to dividends depend on your income level and how much dividend income you receive. Someone in the 22% ordinary income bracket who receives $10,000 in may have access to dividends instead of ordinary dividends saves $700 in federal tax (the difference between 22% and 15%). Someone in the 37% bracket saves $1,700 on the same amount.

If your income is low enough to fall in the 0% capital gains bracket, may have access to dividends are not taxed at all. This is one reason some retirees with modest income strategically time stock sales or dividend collection to stay within that bracket.

Ordinary dividends, by contrast, push your total income higher and can trigger other tax consequences. They can increase your Medicare premiums (if you are on Medicare), reduce your deductions (if you are subject to phase-outs), or push you into a higher tax bracket entirely. may have access to dividends do not have this effect because they are taxed separately.

Common mistakes that cost money

The most common mistake is selling the stock too soon after buying it. If you buy a stock on the ex-dividend date expecting to collect a may have access to dividend, you must hold it for 60 more days. If you sell it on day 59, the dividend becomes ordinary. This often happens to people who buy dividend stocks right before the ex-dividend date, collect the dividend, and then sell — thinking they have completed the transaction.

Another mistake is not accounting for wash sales. If you sell a stock at a loss and buy it back within 30 days, the loss is disallowed and added to your cost basis in the new shares. This does not affect dividend qualification directly, but it can complicate your record-keeping and cause you to miss the holding period if you are not tracking the dates carefully.

A third mistake is assuming all dividend income is may have access to. Some companies pay special dividends or distributions that are ordinary income, return of capital, or capital gains — not may have access to dividends. Your 1099-DIV will specify, but if you assume everything is may have access to and report it that way, you may face an audit.

Frequently Asked Questions

If I own a stock for a year, are all its dividends automatically may have access to?

No. You must hold the stock for more than 60 days during the 121-day window centered on each ex-dividend date. If you sell the stock before that window closes, even if you owned it for a year overall, that dividend becomes ordinary. The holding period resets for each dividend payment.

What happens if my brokerage reports a dividend as ordinary but I think it should be may have access to?

Contact your brokerage first — they may have made an error based on your trading dates. If they confirm it is ordinary, you can file an amended return or attach a statement to your original return explaining the holding period and asking the IRS to reclassify it. Keep copies of your trade confirmations showing the purchase and sale dates.

Do I have to hold the stock through the dividend payment date, or just the ex-dividend date?

You must hold it through the ex-dividend date, not the payment date. The ex-dividend date is set by the company and is usually one or two business days before the record date. Your brokerage statement will show the ex-dividend date for each dividend.

Are dividends from my 401(k) or IRA taxed as ordinary or may have access to?

Neither. Dividends inside a 401(k) or traditional IRA are not taxed at all while the money stays in the account. When you withdraw from a traditional IRA or 401(k), the entire withdrawal is taxed as ordinary income, regardless of whether it came from dividends or capital gains. Roth IRA withdrawals are tax-free if you follow the rules.

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

Yes. The holding period starts from the date you inherit the stock, not from when the original owner bought it. However, inherited stock receives a "step-up in basis," meaning your cost basis is the stock's value on the date of death, not what the original owner paid. This affects capital gains tax if you sell, but not dividend qualification.