Most states tax may have access to dividends, but the rate and rules vary by where you live

Whether you pay state income tax on may have access to dividends depends on your state. Some states do not tax dividend income at all. Others tax may have access to dividends at a lower rate than ordinary income, or at the same rate as regular wages. A few states have special rules for certain types of dividends. The federal government taxes may have access to dividends at preferential rates (0%, 15%, or 20% depending on your income), but that does not stop your state from taxing them differently.

The key distinction is between may have access to dividends and ordinary dividends. may have access to dividends come from stocks you have held for more than 60 days during a 121-day window around the ex-dividend date, or from certain mutual funds and ETFs that meet holding requirements. Ordinary dividends do not meet these conditions. Your brokerage statement or Form 1099-DIV will tell you which category each dividend falls into. Some states follow the federal definition; others do not.

Key Takeaways

  • Nine states have no income tax at all, so you pay no state tax on any dividends: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages).
  • States that do tax income treat may have access to dividends in different ways: some tax them at the same rate as wages, some at a lower rate, and some exempt them entirely.
  • Your brokerage will report may have access to and ordinary dividends separately on Form 1099-DIV, and your state tax return will ask you to report them according to your state's rules.
  • A few states, including Vermont and Illinois, have recently changed or are changing their dividend tax treatment, so checking your state's current rules is necessary before filing.

States with no income tax on dividends

Nine states do not tax income at all, which means dividends are not taxed at the state level. These are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception: it taxes only dividends and interest income, not wages or salaries, but this still means your may have access to dividends are subject to state tax there.

If you live in one of these nine states (or New Hampshire, where dividends are taxed), you report your dividends on your federal return but do not file a state income tax return, or you file one but do not report dividend income. Check your state's tax authority website to confirm the current rules, because tax law changes.

States that tax may have access to dividends at the same rate as ordinary income

Most states that have an income tax treat may have access to dividends the same way they treat wages and other ordinary income. This means your may have access to dividends are taxed at your state's marginal tax rate, which can range from roughly 1% to 13% depending on the state and your income level. States in this category include California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, and Wisconsin.

When you file your state return, you will report may have access to dividends on a line that asks for dividend income. Your state will tax that amount at your ordinary income rate. You do not get the federal preferential rate treatment at the state level.

States with lower tax rates for may have access to dividends

A smaller number of states tax may have access to dividends at a rate lower than ordinary income, or exempt them entirely. Arkansas taxes may have access to dividends at a reduced rate. Illinois recently passed a law to exempt may have access to dividends from state tax starting in 2024, though the implementation details and any phase-in period should be confirmed with the Illinois Department of Revenue. Vermont has also made changes to its dividend tax treatment in recent years.

Because these rules change, you should check your state's tax authority website or your state's tax form instructions before filing. The instructions for your state's income tax return will specify how to report may have access to dividends and what rate applies.

How to report may have access to dividends on your state return

Your brokerage or mutual fund company will send you a Form 1099-DIV by January 31 each year. This form separates may have access to dividends from ordinary dividends in different boxes. Box 1b shows may have access to dividends; Box 1a shows ordinary dividends. Keep this form when you file your taxes.

Your state tax return will have a line or section for dividend income. Some states ask you to report may have access to and ordinary dividends separately; others ask for total dividend income. Follow the instructions on your state's return. If your state taxes may have access to dividends at a lower rate, the return will usually have separate lines so you can enter the two types separately and the state can explore the correct rate to each.

If you use tax software, it will usually pull the dividend information from your federal return and populate your state return automatically. Double-check that the amounts match your 1099-DIV and that the software has applied your state's rules correctly.

What happens if you hold stock for less than 60 days

If you buy a stock and sell it (or it pays a dividend) before you have held it for more than 60 days during the 121-day window, the dividend is treated as ordinary income, not may have access to income. This matters for federal tax purposes and may also matter for your state. States that follow federal definitions will tax this dividend as ordinary income at your regular rate. States that have their own definitions may have different holding-period rules, though most align with federal rules.

Your brokerage will classify the dividend correctly on your 1099-DIV based on your holding period. You do not need to calculate this yourself; just report what the form says.

Dividends from mutual funds and ETFs

Mutual funds and ETFs distribute dividends to shareholders, and these distributions are also classified as may have access to or ordinary. The fund itself must have held the underlying stock for the required period, and you must have held the fund shares for the required period. Your fund company will report the breakdown on your 1099-DIV. State tax treatment follows the same rules as individual stock dividends: if your state taxes may have access to dividends at a preferential rate, that rate applies to may have access to distributions from funds; if your state taxes them at ordinary rates, the same applies.

Some funds pay special dividends or return-of-capital distributions, which may be treated differently. Your 1099-DIV will specify the type of each distribution, and your state's instructions will tell you how to report each type.

Frequently Asked Questions

Do I have to pay state tax on may have access to dividends if I live in a no-income-tax state?

No. If you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, you do not pay state income tax on any dividends. New Hampshire taxes only dividends and interest, so may have access to dividends are taxed there, but wages are not.

Can I claim the federal preferential rate for may have access to dividends on my state return?

No. The federal government taxes may have access to dividends at 0%, 15%, or 20% depending on your income. Your state does not follow this. Most states tax may have access to dividends at your ordinary income rate. A few states tax them at a lower rate or exempt them, but that is a separate state rule, not the federal rate.

What if my state changed its dividend tax rules recently?

Check your state's tax authority website and the instructions for your state's current tax form. Illinois and Vermont have made recent changes. Tax law updates are posted on state revenue department websites, and your tax software should reflect current rules when you read the latest version.

How do I know if a dividend is may have access to or ordinary?

Your brokerage will tell you on Form 1099-DIV. Box 1b lists may have access to dividends; Box 1a lists ordinary dividends. You do not calculate this yourself. If you are unsure whether a specific dividend qualifies, contact your brokerage or check the fund's documentation.

Do I report may have access to dividends differently on my state return than on my federal return?

You report the same dividend amounts on both, but your state may tax them differently. Your federal return uses the preferential rate for may have access to dividends. Your state return follows your state's rules, which may be the same rate as ordinary income, a lower rate, or no tax at all. Both returns use the same 1099-DIV as the source.