may have access to dividends and ordinary dividends are taxed at different rates, and they are reported separately on your tax return

may have access to dividends are not included in ordinary dividends — they are a separate category. The difference matters because the IRS taxes them differently. Ordinary dividends are taxed as regular income at your marginal tax rate. may have access to dividends receive preferential tax treatment and are taxed at lower rates: 0%, 15%, or 20%, depending on your income level. This means the same $1,000 in dividends can cost you more or less in taxes depending on which category it falls into.

Your brokerage or mutual fund company will tell you which dividends are may have access to and which are ordinary when they send you a 1099-DIV form in January. The form separates them into different boxes. You report them on different lines of your tax return (Form 1040, Schedule B). The IRS does not make this distinction for you — you have to use the numbers your brokerage provides.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your total income; ordinary dividends are taxed at your regular income tax rate, which can be as high as 37%.
  • Your brokerage reports may have access to and ordinary dividends separately on Form 1099-DIV, and you must report them on different lines of your tax return.
  • To be may have access to, a dividend must come from a U.S. company or a foreign company whose stock trades on a U.S. exchange, and you must have held the stock for a minimum number of days around the ex-dividend date.
  • Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most bond interest do not may have access to for preferential tax rates.
  • If you do not meet the holding period requirement, the dividend is treated as ordinary income even if the company normally pays may have access to dividends.

What makes a dividend "may have access to" instead of ordinary

A dividend is may have access to only if two conditions are both met: the source must be a may have access to company, and you must have held the stock long enough. The company requirement is straightforward — the dividend must come from a U.S. corporation or a foreign corporation whose stock is traded on a U.S. exchange. Most large, well-known stocks meet this test. Dividends from REITs, master limited partnerships, and certain mutual funds do not may have access to, even if the underlying holdings are U.S. stocks.

The holding period is where most people run into trouble. You must have owned the stock 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 — if you buy the stock on or after that date, you do not receive the dividend at all. If you sell the stock within 60 days after the ex-dividend date, the dividend becomes ordinary income. This rule exists to prevent investors from buying a stock just before the dividend, collecting it, and selling immediately.

The holding period is per dividend, not per year. If you own a stock for two years but sell it 30 days after one ex-dividend date, that particular dividend is ordinary. The next dividend from the same stock, if you hold it long enough, can be may have access to again.

How the tax rates differ between the two categories

Ordinary dividends are added to your other income and taxed at your marginal rate — the same rate that applies to wages, interest, and short-term capital gains. For 2024, that ranges from 10% to 37% depending on your filing status and total income. A person in the 24% tax bracket pays 24% on ordinary dividends.

may have access to dividends use a separate tax schedule. Most people pay 15% on may have access to dividends. If your total income is low enough, you may pay 0%. If your income is very high, you pay 20%. The income thresholds for these rates vary by filing status and change each year. For 2024, the 15% rate applies to most taxpayers, the 0% rate applies to those with income below roughly $47,000 (single filers), and the 20% rate applies to those with income above roughly $518,000 (single filers).

The practical effect: if you are in the 24% ordinary income bracket and receive $1,000 in may have access to dividends, you owe $150 in tax. The same $1,000 in ordinary dividends would cost you $240. That $90 difference is why the distinction matters.

How to report each type on your tax return

Your brokerage sends you a Form 1099-DIV in January. Box 1a shows ordinary dividends. Box 1b shows may have access to dividends. These are not mutually exclusive — the same brokerage account can receive both types in the same year, and they appear in both boxes.

On your Form 1040, you report ordinary dividends on line 5b (or in Schedule B if you have more than $1,500 in dividends). You report may have access to dividends on line 5a. The may have access to dividends line feeds into the capital gains worksheet, which calculates your tax using the preferential rates. The ordinary dividends line is added to your other income and taxed at your marginal rate.

If you use tax software, it usually handles this automatically — you enter the numbers from the 1099-DIV and the software puts them in the right places. If you prepare your return by hand, you must read the 1099-DIV carefully and use the correct line numbers. Putting may have access to dividends on the ordinary line (or vice versa) will change your tax bill.

Dividends that never may have access to for preferential rates

Some dividends are always ordinary, regardless of how long you hold the stock. Dividends from REITs are ordinary income. Dividends from master limited partnerships (MLPs) are ordinary income. Dividends from money market funds, bond funds, and preferred stock issued before 2003 are ordinary income. Dividends paid by a corporation while it is in bankruptcy are ordinary income.

Your 1099-DIV will show these in the ordinary dividends box (Box 1a), not the may have access to box. If you see a dividend from a REIT or MLP on your 1099-DIV, it will always be taxed at your marginal rate, even if you held it for years. This is a fixed rule, not something you can change by holding the stock longer.

What happens if you sell the stock too soon

If you buy a stock, collect a dividend, and sell within 60 days of the ex-dividend date, the IRS treats the dividend as ordinary income. This is called a "wash sale" rule for dividends (though the formal wash sale rule applies to losses, not dividends). The brokerage does not always catch this automatically — you may have to adjust your 1099-DIV yourself or report it correctly on your tax return.

Some investors use a strategy called "dividend capture" — buying a stock just before the ex-dividend date, collecting the dividend, and selling immediately. If you do this, the dividend is ordinary income, and you may also owe capital gains tax on the sale. The tax cost often exceeds the dividend received, which is why this strategy usually loses money.

If you realize after the fact that you sold too soon, you cannot change the past. You report the dividend as ordinary on your current return. If you think the brokerage made an error on the 1099-DIV, contact them and ask for a corrected form (Form 1099-DIV with a "corrected" indicator).

Foreign stocks and may have access to dividends

Dividends from foreign companies can be may have access to if the stock trades on a U.S. exchange (like a foreign company listed on the NYSE or NASDAQ). Dividends from foreign stocks held in a foreign brokerage account are ordinary income. Dividends from American Depositary Receipts (ADRs) — which represent foreign shares held in U.S. custody — can be may have access to if the underlying company meets the test.

The holding period rule still applies. You must hold the ADR or foreign stock for more than 60 days in the 121-day window around the ex-dividend date. Some foreign countries impose a withholding tax on dividends, which is separate from U.S. tax. You can claim a foreign tax credit on your U.S. return for taxes withheld by the foreign country, but this does not change whether the dividend is may have access to or ordinary.

Frequently Asked Questions

Can a dividend be both may have access to and ordinary at the same time?

No. Each dividend is either may have access to or ordinary. However, you can receive both types in the same year from different stocks or funds. Your 1099-DIV will show the total of each type, and you report them on separate lines of your tax return.

If I inherit stock, do I get the holding period from the person who died?

No. Your holding period starts when you inherit the stock, not when the deceased person bought it. However, inherited stock receives a "step-up" in basis, which usually means you have no capital gains tax if you sell it soon after inheriting it. The dividend holding period is separate and begins on the date of inheritance.

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. If you held the stock for more than 60 days in the 121-day window and the company qualifies, ask for a corrected 1099-DIV. If the brokerage confirms the dividend is ordinary, you can still report it as may have access to on your return if you have documentation of the holding period, but this may trigger an audit.

Do I have to do anything special to get the lower tax rate on may have access to dividends?

No. If your brokerage reports the dividend as may have access to on the 1099-DIV and you report it correctly on your tax return, the lower rate applies automatically. You do not need to file any forms or take any action beyond reporting the number in the right place.

Are stock dividends (where the company gives you more shares instead of cash) may have access to or ordinary?

Stock dividends are generally not taxable in the year you receive them. When you later sell the shares, you pay capital gains tax. The holding period for those shares starts when you received them, not when you sell them. This is different from cash dividends and is handled separately on your tax return.