The core difference: tax rates
Ordinary dividends are taxed at your regular income tax rate — the same rate that applies to your salary, wages, or interest from a savings account. may have access to dividends are taxed at a lower rate that applies only to long-term capital gains. For most people, that means may have access to dividends are taxed at 0%, 15%, or 20%, depending on your total income for the year. Ordinary dividends have no special rate; they follow your ordinary income bracket.
The difference matters most if you are in a higher tax bracket. Someone in the 37% ordinary income bracket pays 37% tax on ordinary dividends but only 20% on may have access to dividends — a 17-percentage-point difference on the same dollar amount. Even in lower brackets, the gap exists: a person in the 22% bracket pays 22% on ordinary dividends but 15% on may have access to dividends.
Your brokerage or mutual fund company reports which dividends are ordinary and which are may have access to on Form 1099-DIV, which you receive by January 31 each year. You do not have to calculate this yourself — the company doing the reporting has already sorted them.
Key Takeaways
- Ordinary dividends are taxed as regular income at your full tax bracket rate, while may have access to dividends receive preferential capital gains rates of 0%, 15%, or 20%.
- A dividend qualifies for the lower rate only if you held the stock for more than 60 days during a 121-day window centered on the ex-dividend date.
- Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most bond interest are always taxed as ordinary income, never as may have access to dividends.
- Your brokerage reports may have access to and ordinary dividends separately on Form 1099-DIV; you report each type on your tax return in different places.
What makes a dividend "may have access to"
A dividend becomes may have access to only when two conditions are both met: you must own the stock, and you must hold it long enough. The holding period rule is specific: you must have owned the shares for more than 60 days during a 121-day window that starts 60 days before the ex-dividend date.
The ex-dividend date is the cutoff set by the company — if you buy the stock on or after that date, you do not receive the upcoming dividend at all. If you buy before it, you do. The 121-day window extends 60 days before the ex-dividend date and 60 days after it. You need to hold the stock for more than 60 of those 121 days to meet the holding period.
This rule exists to prevent people from buying a stock just before a dividend payment and selling it when ready after, treating the dividend as a short-term gain. If you buy a stock, collect the dividend, and sell within weeks, the dividend is ordinary, not may have access to. If you hold it longer, it becomes may have access to.
Types of dividends that are always ordinary
Some dividends never may have access to for the lower rate, no matter how long you hold the investment. Real estate investment trust (REIT) dividends are always ordinary income. So are dividends from master limited partnerships (MLPs) and most other partnership distributions. Dividends from stocks in countries without a tax treaty with the United States are also ordinary, because the IRS cannot verify the foreign tax withholding.
Interest paid by bonds — including Treasury bonds, corporate bonds, and municipal bonds (except in limited cases) — is taxed as ordinary income, not as a may have access to dividend. Some people confuse bond interest with stock dividends because both are payments from an investment, but they are taxed completely differently.
Dividends from mutual funds and exchange-traded funds (ETFs) can be either ordinary or may have access to, depending on what the fund holds and how long you held the fund shares. The fund company reports this breakdown on your 1099-DIV.
How to report each type on your tax return
When you file your federal tax return, ordinary dividends and may have access to dividends go in different places. Ordinary dividends are reported on Schedule B (Interest and Ordinary Dividends) and added to your ordinary income. may have access to dividends are reported on Schedule D (Capital Gains and Losses) or on a special line on Form 1040 that calculates them at the preferential rate.
If you use tax software, the program usually handles this separation automatically once you enter the amounts from your 1099-DIV. If you file by hand or work with a tax preparer, make sure they know which dividends are may have access to and which are ordinary — the 1099-DIV will show both amounts clearly.
Some states also tax dividends, and a few states tax may have access to dividends at a different rate than ordinary dividends. Check your state's tax rules or ask a tax preparer about your state's treatment.
Why the tax difference exists
The preferential rate for may have access to dividends is a policy choice: Congress set it to encourage long-term investing and to avoid double taxation. When a company earns profit and pays corporate income tax on it, then pays dividends to shareholders, the shareholder is taxed again on that same money. The lower rate on may have access to dividends is meant to offset some of that double taxation, but only for investors who hold their shares long enough to be considered long-term investors.
Ordinary dividends receive no such offset. They are taxed at your full income tax rate, the same as wages or salary. This creates an incentive to hold stocks longer rather than trading frequently.
How dividend tax rates change with your income
The rate you pay on may have access to dividends depends on your total taxable income for the year, not on the dividend amount alone. The IRS sets income thresholds that determine whether your may have access to dividends are taxed at 0%, 15%, or 20%.
These thresholds change each year and vary by filing status (single, married filing jointly, head of household, and so on). For 2024, for example, the 0% rate applies to single filers with taxable income up to $47,025, the 15% rate applies to income between $47,025 and $518,900, and the 20% rate applies to income above that. But these numbers shift annually for inflation.
Your brokerage does not calculate your actual tax rate — it only reports the dividend amounts. You or your tax preparer determine which rate applies based on your total income for the year. This is why two people receiving the same dividend can pay different tax amounts on it.
Frequently Asked Questions
Can I lose may have access to dividend status if I sell the stock too soon?
Yes. If you sell within 60 days of the ex-dividend date, the dividend becomes ordinary income, not may have access to. The holding period is measured around the ex-dividend date, not around when you bought or sold the stock. If you buy before the ex-dividend date but sell shortly after receiving the dividend, you may not meet the 60-day holding requirement.
Do I have to do anything to report may have access to dividends, or does my brokerage handle it?
Your brokerage reports the amounts on Form 1099-DIV and separates ordinary from may have access to. You report these amounts on your tax return in the correct places — ordinary dividends on Schedule B, may have access to on Schedule D or Form 1040. Tax software usually does this automatically if you enter the 1099-DIV data correctly.
What if my brokerage reports a dividend as ordinary but I think it should be may have access to?
Contact your brokerage and ask them to verify the holding period. If you held the stock for more than 60 days in the 121-day window around the ex-dividend date, the brokerage may have made an error. They can issue a corrected 1099-DIV. If the brokerage confirms the holding period was too short, the ordinary classification is correct.
Are dividends from index funds or ETFs may have access to or ordinary?
It depends on what the fund holds and how long you held the fund shares. Most index funds and ETFs that track stock indexes pay may have access to dividends if you held the shares long enough. The fund company reports the breakdown on your 1099-DIV. Bond funds and funds holding REITs or MLPs will have ordinary dividends.
If I reinvest my dividends, does that change whether they are may have access to?
No. Reinvesting dividends does not change their tax classification. A may have access to dividend is still may have access to whether you take it as cash or use it to buy more shares. However, reinvesting does create a new holding period for those newly purchased shares, which affects whether future dividends on those new shares will be may have access to.