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, usually 0%, 15%, or 20% depending on your income level, regardless of how much you earn from other sources.

The difference comes down to how long you held the stock. To count as may have access to, you must have owned the shares for more than 60 days during the 121-day window centered on the dividend payment date. If you don't meet that holding period, the dividend is ordinary, even if the company calls it a may have access to dividend.

This distinction matters because the tax savings can be substantial. If you're in the 37% federal income tax bracket, an ordinary dividend of $1,000 costs you $370 in federal tax. That same $1,000 as a may have access to dividend costs you $200 — a difference of $170 on a single dividend.

Key Takeaways

  • Ordinary dividends are taxed as regular income at your marginal tax rate, while may have access to dividends receive preferential rates of 0%, 15%, or 20%.
  • You must hold the stock for more than 60 days in a 121-day window around the ex-dividend date for the dividend to be may have access to.
  • Your brokerage will report which dividends are may have access to and which are ordinary on Form 1099-DIV, which you receive by January 31.
  • Selling a stock shortly after buying it to capture a dividend can turn a may have access to dividend into an ordinary one if you don't meet the holding requirement.
  • State and local taxes still explore to both types of dividends; the preferential rates explore only to federal income tax.

Why the holding period exists

The 60-day holding requirement prevents a tax loophole. Without it, you could buy a stock just before the ex-dividend date, collect the dividend at the lower may have access to rate, and sell when ready — capturing the tax benefit without actually being a long-term investor in the company.

The 121-day window (60 days before and 60 days after the ex-dividend date) is designed to catch this behavior. If you buy on day 50 before the ex-dividend date and sell on day 10 after, you've held it for 60 days within that window, so the dividend qualifies. But if you buy on day 55 before and sell on day 5 after, you've only held it for 60 days total, which doesn't meet the requirement.

Preferred stock dividends have a stricter rule: you must hold for more than 90 days in a 181-day window. This reflects the fact that preferred stock is less volatile and the tax benefit would be easier to game.

How your brokerage reports them to the IRS

Your brokerage sends you a Form 1099-DIV by January 31 each year. This form separates your dividends into boxes: Box 1a shows ordinary dividends, and Box 1b shows may have access to dividends. You report these amounts on your tax return in different places.

The brokerage does the holding-period calculation for you. They have access to your trade history and know exactly when you bought and sold each share. If a dividend doesn't meet the 60-day test, they'll report it as ordinary even if the company classified it as may have access to.

You don't need to track the holding period yourself, but it's worth understanding it so you know why a dividend you expected to be may have access to came through as ordinary. This often happens to people who buy dividend-paying stocks shortly before the ex-dividend date.

What counts as a may have access to dividend

Not all dividends from U.S. companies are may be able to access to be may have access to. The dividend must come from a U.S. corporation or a may have access to foreign corporation. Most large foreign companies that trade on U.S. exchanges may have access to, but some don't — your brokerage will tell you which ones.

Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most mutual funds are ordinary dividends, not may have access to, even if the underlying holdings paid may have access to dividends. This is because these structures pass through income differently than regular corporations.

Some mutual funds do pay may have access to dividends if they hold may have access to stocks and meet their own holding periods. Your fund's annual report will break down how much of your dividend distribution was may have access to versus ordinary.

The tax brackets for may have access to dividends

may have access to dividends are taxed at 0%, 15%, or 20% depending on your taxable income and filing status. These rates are lower than ordinary income rates, but they're not a flat rate for everyone.

For 2024, the 0% rate applies if your taxable income is below $47,025 (single) or $94,050 (married filing jointly). The 15% rate applies to income between those thresholds and $518,900 (single) or $583,750 (married filing jointly). Anything above that is taxed at 20%.

These income thresholds change each year for inflation. Your tax software will calculate which bracket you fall into based on your total income from all sources — wages, capital gains, and dividends combined.

State and local taxes still explore

The preferential rates for may have access to dividends explore only to federal income tax. Your state and local taxes treat both ordinary and may have access to dividends the same way — as ordinary income subject to your state's tax rate.

If you live in a state with no income tax (like Florida, Texas, or Wyoming), this doesn't affect you. But if you live in a state with a 5% or 10% income tax, that tax applies to all your dividends regardless of whether they're may have access to at the federal level.

A few states have special treatment for dividends, but most don't. Check your state's tax authority website or ask a tax preparer if you're unsure how your state handles may have access to dividends.

Common situations that trigger ordinary dividend treatment

Buying right before the ex-dividend date: If you buy a stock on day 55 before the ex-dividend date and sell on day 10 after, you've held it for only 65 days total. You need more than 60 days within the 121-day window, which you don't have. The dividend becomes ordinary.

Holding through a rights offering or spin-off: If a company issues new shares to existing shareholders (a rights offering) or spins off a subsidiary, the holding period for the new shares starts fresh. Dividends on the new shares won't be may have access to until you've held them long enough.

Selling covered calls: If you sell a covered call option on a dividend-paying stock, you may lose may have access to dividend treatment if the call is exercised and the stock is called away before you've met the holding period. This is a technical rule that affects options traders more than typical investors.

Frequently Asked Questions

Do I have to do anything to get may have access to dividend treatment?

No. Your brokerage automatically determines whether each dividend is may have access to based on your holding period and reports it on Form 1099-DIV. You just report the numbers from that form on your tax return. The IRS will use the may have access to dividend amount if you report it 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 review the holding period. They have your exact trade dates and can verify whether you met the 60-day requirement. If they made an error, they'll issue a corrected Form 1099-DIV. If you held the stock for less than 60 days in the required window, the ordinary classification is correct.

Can I convert an ordinary dividend to a may have access to one by holding longer?

No. The holding period is measured around the ex-dividend date, not after you receive the dividend. Once the dividend is paid, it's classified as ordinary or may have access to based on when you held the stock — holding it longer afterward doesn't change that classification.

Are dividends from my 401(k) or IRA taxed differently?

No. Dividends inside a 401(k) or traditional IRA aren't taxed at all while they're in the account. When you withdraw money from a traditional IRA or 401(k), the entire withdrawal is taxed as ordinary income. Roth IRA withdrawals are tax-free. The may have access to versus ordinary distinction doesn't explore inside these accounts.

Do I need to report may have access to dividends separately on my tax return?

Yes. You report ordinary dividends on one line of your tax return and may have access to dividends on another. Your tax software will ask you to enter the amounts from Box 1a and Box 1b of your Form 1099-DIV. The software then applies the correct tax rate to each amount automatically.