may have access to dividends are taxed at lower rates than ordinary income, but only if you meet holding period and other requirements

A may have access to dividend is a dividend payment that the IRS taxes at capital gains rates rather than your regular income tax rate. For most people, this means paying 0%, 15%, or 20% tax on the dividend instead of your ordinary income tax bracket, which could be as high as 37%. The catch is that the dividend must come from a may have access to source, and you must have owned the stock long enough before and after the payment date.

Whether a dividend counts as may have access to depends on three things: the type of company paying it, how long you held the stock, and whether the dividend was actually declared as a dividend by the company. Not all dividends may have access to, and missing the holding period requirement can turn a may have access to dividend into an ordinary one, even if everything else checks out.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your income level, while ordinary dividends use your regular tax bracket rate.
  • You must own the stock for at least 60 days during a 121-day window around the dividend payment date for the dividend to be may have access to.
  • Dividends from U.S. corporations and may have access to foreign corporations usually count as may have access to, but dividends from REITs, master limited partnerships, and some other entities do not.
  • Your brokerage will report which dividends are may have access to on your 1099-DIV form, but you are responsible for tracking holding periods correctly.

The three requirements for a may have access to dividend

The IRS requires all three of these conditions to be met. If even one fails, the dividend is taxed as ordinary income.

First, the dividend must come from a may have access to source. This includes dividends paid by U.S. corporations and dividends paid by foreign corporations whose stock trades on a U.S. exchange or whose country has a tax treaty with the United States. Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and certain other entities do not may have access to, no matter how long you held them.

Second, you must meet the holding period requirement. You need to own the stock for at least 60 days during a 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the date by which you must own the stock to receive the dividend. If you buy the stock one day after the ex-dividend date, you will not receive that dividend at all. If you sell it 30 days after the ex-dividend date, you have only held it 30 days, which is not enough.

Third, the company must have actually declared the payment as a dividend. Some distributions are return of capital, which are not taxed as dividends at all. Your brokerage statement and the 1099-DIV form you receive will show which distributions count as dividends.

How the 60-day holding period works in practice

The holding period rule trips up many investors because it is not simply "own the stock for 60 days." The window is 121 days centered around the ex-dividend date, and you must hold the stock for at least 60 of those days.

Here is an example: suppose a stock has an ex-dividend date of June 15. The 121-day window runs from April 16 (60 days before) through September 14 (60 days after). You must own the stock for at least 60 days within that window. If you buy on May 1 and sell on August 15, you held it for 107 days, well over 60, so the dividend qualifies. If you buy on May 1 and sell on June 20, you held it for only 50 days, so the dividend does not may have access to.

Days you do not own the stock do not count. If you sell before the 60-day threshold is met, the holding period resets if you buy the stock again. The IRS also has special rules for wash sales and for dividends paid on preferred stock, which use a longer 90-day holding period within a 181-day window.

The tax rates for may have access to dividends

may have access to dividends are taxed at the long-term capital gains rates, which are 0%, 15%, or 20%. Your rate depends on your taxable income for the year, not on how long you held the stock. These brackets change each year and are different for single filers, married filing jointly, and other filing statuses.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married filing jointly filers up to $94,050. The 15% rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). The 20% rate applies to income above those amounts. These numbers are adjusted annually for inflation.

If you are in the 0% bracket, you owe no federal tax on may have access to dividends. Many people in early retirement or with low income for a particular year can use this to their advantage. If you are in the 15% bracket, may have access to dividends are taxed at 15% instead of your ordinary rate, which could be 22%, 24%, or higher. The higher your ordinary tax bracket, the more you save by having dividends may have access to.

Ordinary dividends and how they differ

An ordinary dividend is any dividend that does not meet the may have access to dividend requirements. This includes dividends from non-may have access to sources like REITs and MLPs, dividends you held for too short a time, and certain special distributions. Ordinary dividends are taxed at your regular income tax rate, which ranges from 10% to 37% depending on your tax bracket.

For example, if you are in the 24% tax bracket and receive a $1,000 ordinary dividend, you owe $240 in federal tax. If that same $1,000 were a may have access to dividend and you are in the 15% capital gains bracket, you would owe $150. The difference is significant over time, especially for investors who receive substantial dividend income.

Your brokerage will report ordinary and may have access to dividends separately on your 1099-DIV form. Box 1a shows ordinary dividends, and Box 1b shows may have access to dividends. You report each on your tax return in the appropriate place, and the tax software or tax preparer will apply the correct rate to each.

What happens if you do not meet the holding period

If you sell the stock before you have held it for 60 days within the required window, the dividend becomes ordinary income and is taxed at your full tax rate. This can happen even if you intended to hold long-term and only sold early due to unexpected circumstances.

Some investors try to avoid this by buying the stock back after selling, but the IRS wash sale rules prevent you from claiming a loss on the sale if you buy the same or substantially identical stock within 30 days before or after the sale. The wash sale rule does not directly affect dividend qualification, but it can complicate your tax situation if you are trying to manage losses and gains together.

If you receive a dividend and later sell the stock before meeting the holding period, you cannot go back and change the dividend's tax treatment. You must report it as ordinary income on your tax return for that year. This is why it is important to track your purchase and sale dates carefully, especially if you trade frequently or own many positions.

How to track may have access to versus ordinary dividends

Your brokerage sends you a 1099-DIV form by January 31 each year, showing dividends paid during the previous year. The form separates may have access to dividends (Box 1b) from ordinary dividends (Box 1a). You should keep this form with your tax records.

However, the brokerage's classification is based on what the company reported and the holding period you had at the time the dividend was paid. If you sold the stock after receiving the dividend but before holding it long enough, the brokerage may have initially marked it as may have access to, but it should not have. You are responsible for catching this and correcting it on your tax return if needed.

Many tax software programs and tax preparers will ask you to confirm holding periods or will flag dividends that may not may have access to based on your trading history. If you trade frequently or have a complex portfolio, consider using tax-tracking software that monitors your positions in real time and alerts you to holding period issues before the tax year ends.

Frequently Asked Questions

Can I lose may have access to dividend status if I sell the stock after receiving the dividend?

No. Once the dividend is paid, its tax treatment is locked in based on your holding period at that moment. Selling the stock later does not change whether the dividend was may have access to. However, if you sell before you have held the stock for 60 days within the required window, the dividend is ordinary income from the start, not may have access to.

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

Yes. may have access to dividends go on Schedule D (Capital Gains and Losses) or are reported directly on your 1040 depending on your tax software. Ordinary dividends go on Schedule B (Interest and Ordinary Dividends). Your tax software will usually sort them automatically based on the 1099-DIV, but you should verify the amounts are correct.

What if my brokerage reports a dividend as may have access to but I did not hold the stock long enough?

You need to correct this on your tax return. The brokerage may have made an error, or you may have sold the stock after the dividend was paid but before meeting the 60-day holding period. Report the dividend as ordinary income on Schedule B instead of as a may have access to dividend. Keep records of your purchase and sale dates to support the correction.

Are dividends from foreign stocks always ordinary income?

No. Dividends from foreign corporations can be may have access to if the stock trades on a U.S. exchange or the company's country has a tax treaty with the United States. Your brokerage should report these correctly on the 1099-DIV, but verify that the company meets the requirements if you are unsure.

Do state taxes apply to may have access to dividends at the same rate as federal taxes?

No. State tax rates vary widely and do not follow the federal capital gains brackets. Some states tax may have access to dividends at a lower rate than ordinary income, some tax them the same, and a few do not tax dividends at all. Check your state's tax rules or consult a tax preparer for your specific situation.