Dividends are taxed differently depending on the type, and the rate you pay can be lower than your regular income tax rate
Not all dividends are taxed the same way. may have access to dividends — those from U.S. corporations or certain foreign corporations, held for a minimum time — are taxed at preferential rates: 0%, 15%, or 20%, depending on your income bracket. Ordinary dividends — including most dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and preferred stock — are taxed as regular income at your marginal tax rate, which can be as high as 37% for the highest earners.
The difference matters. A person in the 24% tax bracket pays 15% on may have access to dividends but 24% on ordinary dividends from the same account. The tax code rewards you for holding certain stocks longer and penalizes you for holding others at all. Your brokerage will tell you which dividends are may have access to and which are ordinary on your year-end tax statement (Form 1099-DIV), but you need to understand the rules to plan ahead.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% based on your income; ordinary dividends are taxed at your full marginal rate, which can be up to 37%.
- To may have access to for the lower rate, you must hold the stock for at least 60 days around the dividend payment date — holding it longer does not help.
- Dividends from REITs, MLPs, and most preferred stock are always ordinary income, no matter how long you hold them.
- Your brokerage reports may have access to and ordinary dividends separately on Form 1099-DIV, which you use to fill out Schedule B or Schedule D on your tax return.
- If you hold dividend-paying stocks in a 401(k), IRA, or other retirement account, you pay no tax on the dividends until you withdraw the money.
What makes a dividend "may have access to" instead of ordinary
The IRS created the may have access to dividend category in 2003 to encourage long-term stock ownership. A dividend is may have access to if it comes from a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you held the stock for at least 60 days during a 121-day window centered on the ex-dividend date (the date the dividend is declared).
The 60-day rule is strict. If you buy a stock three days before the ex-dividend date and sell it 50 days later, the dividend is ordinary income, not may have access to. If you buy it 30 days before and hold it 90 days after, it qualifies. The window is 60 days before the ex-dividend date through 60 days after. Days you do not own the stock do not count, and days the market is closed do not count either.
There is no benefit to holding the stock longer than the 60-day minimum. A dividend from a stock you have owned for 20 years is taxed the same way as one from a stock you have owned for 61 days, as long as you held it through the window.
Dividends that are always taxed as ordinary income
Some investments pay dividends that never may have access to for the lower rate, no matter how long you hold them. REIT dividends are the most common. REITs are required to distribute 90% of their taxable income to shareholders, and that income is taxed as ordinary income to you. A REIT dividend paying 4% is taxed at your full marginal rate — 24%, 32%, or 37% — not at the may have access to rate of 15% or 20%.
Master limited partnership (MLP) distributions are also ordinary income. MLPs are often energy companies (pipelines, refineries) that pass through their income to you. The distribution itself is not a dividend in the tax sense; it is a return of capital or ordinary income, depending on the partnership's structure. Either way, it is taxed at your marginal rate.
Preferred stock dividends are ordinary income unless the preferred stock is issued by a corporation and meets the same holding-period rules as common stock. Most preferred stock does not meet those rules, so assume it is ordinary unless your brokerage tells you otherwise. Dividends paid by money market funds and bond funds are also ordinary income.
How the tax brackets work for may have access to dividends
may have access to dividends are taxed at three rates: 0%, 15%, or 20%. Your rate depends on your total taxable income for the year, not on how much dividend income you receive. For 2024, the brackets are:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,025 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,050 to $583,750 | Over $583,750 |
| Head of Household | Up to $62,975 | $62,975 to $551,350 | Over $551,350 |
These brackets include all your income — wages, self-employment income, capital gains, and dividends. If you are single, earn $50,000 in wages, and receive $10,000 in may have access to dividends, your total taxable income is $60,000. The first $47,025 of that is in the 0% bracket, and the remaining $12,975 is in the 15% bracket. So you pay 0% on $47,025 of dividends and 15% on the rest.
The brackets adjust each year for inflation. Check the IRS website or your tax software for the current year's numbers before you file.
Dividends in retirement accounts and taxable accounts
If you own dividend-paying stocks in a traditional IRA, Roth IRA, 401(k), or other retirement account, you do not pay tax on the dividends when you receive them. The dividends stay in the account and grow tax-free (or tax-deferred, in the case of a traditional account). You pay tax only when you withdraw the money, and at that point the entire withdrawal is taxed as ordinary income, regardless of how much came from dividends.
In a taxable brokerage account, you pay tax on dividends in the year you receive them, whether or not you reinvest them. If your brokerage automatically reinvests dividends, you still owe tax on the reinvested amount. This is one reason to hold dividend stocks in retirement accounts when you can — you avoid the annual tax bill and let the dividends compound tax-free.
How to report dividends on your tax return
Your brokerage sends you a Form 1099-DIV by January 31 each year. This form lists all your dividends, broken down by type: may have access to dividends, ordinary dividends, capital gain distributions, and others. You use this form to fill out Schedule B (Interest and Ordinary Dividend Income) or Schedule D (Capital Gains and Losses), depending on the amount and type.
If your total ordinary dividends and interest are $1,500 or less, you can report them directly on Form 1040 without filing Schedule B. If you have may have access to dividends, you must file Schedule D, even if the amount is small. Your tax software will walk you through this; the key is to enter the numbers from your 1099-DIV correctly and let the software calculate the tax.
Keep your 1099-DIV and brokerage statements for at least three years. If the IRS audits you, they will compare your return to the 1099-DIV the brokerage filed with them.
Frequently Asked Questions
Do I have to hold a stock for a full year to get the may have access to dividend rate?
No. You need to hold it for at least 60 days during a 121-day window around the ex-dividend date. You can buy the stock 30 days before the ex-dividend date, collect the dividend, and sell it 35 days later — that is only 65 days total — and still get the may have access to rate. The holding period is much shorter than a year.
What if I buy a stock right before the ex-dividend date and sell it right after?
The dividend is ordinary income. You did not hold the stock for 60 days in the required window, so it does not may have access to. This strategy — buying a stock for the dividend and selling immediately — is called "dividend capture," and the tax code penalizes it by treating the dividend as ordinary income.
Are foreign dividends taxed differently?
Dividends from foreign corporations are ordinary income unless the foreign corporation's stock trades on a U.S. exchange and you meet the 60-day holding requirement. Many large foreign companies trade on U.S. exchanges (like Unilever or Nestlé), so their dividends can be may have access to. Check your brokerage statement or ask your broker whether a specific foreign dividend qualifies.
If I lose money on a stock, can I deduct the dividend I paid tax on?
No. The dividend is taxable income in the year you receive it, and a capital loss on the stock is a separate item. You can use the capital loss to offset other capital gains or up to $3,000 of ordinary income, but not to reduce the tax on the dividend itself.
Do I owe tax on dividends if I reinvest them?
Yes. Reinvesting the dividend does not change the tax. You owe tax on the full dividend amount in the year you receive it, whether you take the cash or buy more shares. This is why holding dividend stocks in a retirement account is often smarter — the dividends compound without triggering an annual tax bill.