Yes, you pay tax on dividends, and the rate depends on the type of dividend and how long you held the stock

Dividends are taxable income. The IRS treats them as earnings you received from a company, and you report them on your tax return. The amount of tax you owe depends on two things: whether the dividend is may have access to or ordinary, and your total income for the year. may have access to dividends are taxed at lower rates — the same rates that apply to long-term capital gains. Ordinary dividends are taxed as regular income, at your normal tax bracket rate.

You receive a tax form called a 1099-DIV from your brokerage or the company that paid the dividend. This form shows how much you received and what type it was. You use this form to report the income when you file your tax return with the IRS.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your income; ordinary dividends are taxed at your regular income tax rate, which can be as high as 37%.
  • A dividend is may have access to only if you held the stock for at least 60 days during the 121-day period centered on the dividend payment date.
  • You report all dividends on your tax return using the 1099-DIV form your brokerage sends you by January 31.
  • If you own dividend-paying stocks in a retirement account like a 401(k) or IRA, you do not owe tax on the dividends until you withdraw the money.

The difference between may have access to and ordinary dividends

A may have access to dividend is one that meets specific IRS rules about how long you owned the stock. You must have held the shares 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 cutoff — if you buy the stock on or after that date, you do not receive that dividend payment. If you held the stock long enough, the dividend counts as may have access to and gets the lower tax rate.

An ordinary dividend is any dividend that does not meet the holding period rule. This includes dividends on stocks you owned for fewer than 60 days, dividends from certain types of funds, and dividends from preferred stock in some cases. Ordinary dividends are taxed as ordinary income, meaning they are added to your wages, interest, and other income and taxed at your full tax bracket rate.

Your brokerage will tell you on the 1099-DIV which dividends are may have access to and which are ordinary. You do not have to calculate this yourself.

Tax rates for may have access to dividends

may have access to dividends are taxed at the long-term capital gains rate, which is lower than ordinary income rates. The rate you pay depends on your total taxable income for the year and your filing status. For 2024, the three rates are 0%, 15%, and 20%.

The 0% rate applies to lower-income filers — for example, single filers with taxable income up to $47,025 in 2024. The 15% rate applies to middle-income filers, and the 20% rate applies to high-income filers. These income thresholds change each year. Your tax software or a tax professional can tell you which bracket you fall into based on your specific situation.

Even though may have access to dividends get a preferential rate, you still owe tax. The benefit is that you pay less than you would if the same amount came to you as ordinary income.

Tax rates for ordinary dividends

Ordinary dividends are taxed at your regular income tax rate. If you are in the 22% tax bracket, ordinary dividends are taxed at 22%. If you are in the 35% bracket, they are taxed at 35%. The federal income tax brackets for 2024 range from 10% to 37%, depending on your income and filing status.

This is why the holding period matters. If you own a stock for only a few weeks and receive a dividend, that dividend is taxed as ordinary income at your full rate. If you hold the same stock for at least 60 days around the payment date, the same dividend is taxed at the lower capital gains rate. The difference can be substantial — a $1,000 ordinary dividend taxed at 37% costs you $370 in federal tax, while a $1,000 may have access to dividend taxed at 20% costs you $200.

Dividends in retirement accounts

If you own dividend-paying stocks inside a 401(k), traditional IRA, or Roth IRA, you do not pay tax on the dividends in the year you receive them. The dividends stay inside the account and are reinvested or held until you withdraw money.

With a traditional IRA or 401(k), you pay tax on the withdrawals you make in retirement, at your ordinary income rate at that time. With a Roth IRA, withdrawals are tax-free if you follow the rules. This is one reason retirement accounts are valuable — they let your dividends compound without being reduced by annual tax bills.

How to report dividends on your tax return

Your brokerage or the company that paid the dividend sends you a 1099-DIV form by January 31 each year. This form shows the total dividends you received, broken down by type — may have access to dividends, ordinary dividends, capital gain distributions, and other categories.

You report this income on Schedule B (Interest and Ordinary Dividends) or Schedule 1 (Additional Income), depending on the amount and type. If you received more than $1,500 in dividends, you must use Schedule B. Your tax software will guide you through this, or a tax professional can help you file.

If you received dividends from multiple sources, add them all together on the form. You report the total may have access to dividends and the total ordinary dividends, not each individual payment separately.

State and local taxes on dividends

Most states tax dividend income. Some states tax all dividends at your regular income tax rate. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all, so dividends are not taxed at the state level.

Other states may tax may have access to and ordinary dividends differently, or may offer a deduction or exemption for dividend income. Check your state's tax website or speak with a tax professional to understand how your state treats dividends. Local taxes may also apply in some cities and counties.

Frequently Asked Questions

Do I owe tax on dividends if I reinvest them?

Yes. Whether you take the dividend as cash or reinvest it back into the stock, you owe tax on it in the year you receive it. The IRS taxes the dividend based on when it was paid to you, not on what you did with the money afterward.

What if I sold the stock before the ex-dividend date but still got paid the dividend?

If you sold before the ex-dividend date, you should not have received the dividend. If you did, contact your brokerage — it may have been an error. If you held the stock on the ex-dividend date and sold it later, you still owe tax on the dividend you received.

Can I deduct dividend losses?

No. Dividends are income, not losses. However, if you sell a stock at a loss, you can deduct that capital loss against capital gains or, in some cases, against ordinary income. Dividends and capital losses are separate items on your tax return.

Do I need to report dividends under $10?

Yes. You must report all dividends, no matter how small. Your brokerage will include them on the 1099-DIV, and you report them on your tax return. There is no minimum threshold for reporting dividend income.

What happens if I don't report dividend income?

The IRS receives a copy of your 1099-DIV from your brokerage. If you do not report the income, the IRS will likely catch the discrepancy and send you a notice. You will owe the tax plus interest and potentially penalties. It is always better to report the income when you file.