Yes, you pay income tax on non-may have access to dividends at your ordinary tax rate

Non-may have access to dividends are taxed as ordinary income, which means they're added to your other income and taxed at whatever federal tax bracket you fall into for the year. This is different from may have access to dividends, which get a lower preferential rate. If you're in the 22% tax bracket, non-may have access to dividends are taxed at 22%. If you're in the 37% bracket, they're taxed at 37%.

The IRS doesn't separate non-may have access to dividends into a special category on your tax return. They show up as part of your total income on Form 1040, and the tax you owe depends entirely on your overall income level and filing status for that year. This means the same dividend payment could be taxed at different rates depending on whether you had a big year or a lean year.

Your brokerage will report non-may have access to dividends to you on Form 1099-DIV, and you'll report them on your tax return. The brokerage also reports them to the IRS, so the IRS knows what you received.

Key Takeaways

  • Non-may have access to dividends are taxed at your full ordinary income tax rate, which ranges from 10% to 37% depending on your income and filing status.
  • may have access to dividends receive preferential rates of 0%, 15%, or 20%, making them significantly cheaper to own than non-may have access to dividends.
  • Your brokerage reports non-may have access to dividends on Form 1099-DIV, and you report them on your tax return as ordinary income.
  • The tax you owe on non-may have access to dividends changes year to year based on your total income, not on the dividend amount alone.

What makes a dividend non-may have access to in the first place

A dividend is non-may have access to if it doesn't meet the IRS holding period requirement. You must own the stock for more than 60 days during a 121-day window centered on the ex-dividend date. If you buy a stock, collect a dividend, and sell it within that window, the dividend is non-may have access to.

Some dividends are automatically non-may have access to regardless of how long you hold the stock. Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and certain preferred stocks are treated as non-may have access to income. Dividends from stocks you borrowed to short-sell are also non-may have access to.

Money market funds and bond funds typically pay non-may have access to dividends because the underlying investments are debt instruments, not stocks. If you own a fund that holds mostly bonds, the distributions you receive are ordinary income, not may have access to dividends.

How non-may have access to dividends affect your tax bracket

Non-may have access to dividends push your income higher, which can move you into a higher tax bracket or reduce deductions and credits you're may have access to to. If you're close to a bracket boundary, a large non-may have access to dividend payment could cost you more than the dividend itself in lost tax benefits.

For example, if you're single and earn $45,000 in wages, you're in the 22% bracket. A $5,000 non-may have access to dividend moves your total income to $50,000, still in the 22% bracket, so you owe $1,100 in tax on that dividend. But if you earn $47,000 in wages and receive a $5,000 non-may have access to dividend, you're now at $52,000, and you might lose part of a tax credit that phases out at higher income levels. The actual tax cost could be higher than 22% when you account for the lost benefit.

This is one reason why investors who are close to income thresholds for tax credits, deductions, or Medicare premiums sometimes try to time the sale of dividend-paying stocks to avoid pushing themselves over the line.

State and local taxes on non-may have access to dividends

Most states tax non-may have access to dividends as ordinary income at your state income tax rate. A few states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), so residents of those states pay only federal tax on dividends.

Some states tax may have access to and non-may have access to dividends differently. Massachusetts, for example, taxes all dividends at a flat 5% rate regardless of whether they're may have access to. New Hampshire taxes only interest and dividends at 5%, while other income is untaxed. If you live in a high-tax state like California or New York, the state tax on non-may have access to dividends can be substantial.

Local taxes on dividends are rare but do exist in some cities and counties. Check your state's tax authority website or ask a tax professional if you live in a major city, because local taxes can add another 1% to 2% to your bill.

How to report non-may have access to dividends on your tax return

Your brokerage sends you Form 1099-DIV by January 31 each year. This form lists all dividends you received in the previous year, separated into may have access to and non-may have access to amounts. You'll also receive copies for the IRS and your state tax authority.

On your federal return, you report non-may have access to dividends on Schedule 1 (Form 1040), line 5b, labeled "Ordinary may have access to dividends." This goes into your total income for the year. If you use tax software, it usually pulls the information directly from the 1099-DIV and places it in the right spot.

If you received dividends from multiple brokerages, you'll receive multiple 1099-DIVs. Add up all the non-may have access to dividends from all forms and report the total on your return. The IRS cross-checks this against the copies sent to them, so accuracy matters.

The difference between non-may have access to and may have access to dividend tax rates

may have access to dividends are taxed at preferential rates: 0% for taxpayers in the 10% and 12% brackets, 15% for those in the 22%, 24%, and 32% brackets, and 20% for those in the 35% and 37% brackets. Non-may have access to dividends get no preferential treatment—they're taxed at your full ordinary rate.

The gap between the two can be significant. If you're in the 32% bracket, a may have access to dividend costs you 15% in tax while a non-may have access to dividend costs you 32%—more than double. Over time, this difference adds up, which is why financial advisors often recommend holding dividend-paying stocks long enough to may have access to for the lower rate.

The preferential rates for may have access to dividends were set by the Tax Cuts and Jobs Act of 2017 and are scheduled to expire after 2025, reverting to ordinary income rates. If that happens, the tax advantage of may have access to dividends disappears, though Congress may extend the rates before then.

Strategies to minimize tax on dividend income

Hold dividend-paying stocks for more than 60 days around the ex-dividend date to convert non-may have access to dividends into may have access to ones. This is the simplest approach and requires no special planning—just patience.

Place dividend-paying stocks in tax-advantaged accounts like IRAs or 401(k)s, where dividends grow without triggering annual tax bills. You only pay tax when you withdraw money from the account, and in the case of Roth IRAs, you may not pay tax at all.

Avoid buying dividend-paying stocks just before the ex-dividend date if you plan to sell shortly after. The dividend is taxable to you, but you don't get the benefit of holding the stock long-term, so you end up paying ordinary income tax on a dividend that didn't benefit you much.

If you have investment losses in other parts of your portfolio, you can use them to offset dividend income. This is called tax-loss harvesting, and it reduces your taxable income dollar-for-dollar.

Frequently Asked Questions

Do I owe tax on non-may have access to dividends if I reinvest them?

Yes. Whether you take the dividend as cash or reinvest it in more shares, you owe tax on the full amount in the year you receive it. Reinvestment doesn't defer or eliminate the tax—it just means you're buying more shares with after-tax money.

What if my non-may have access to dividend income is very small?

You still report it on your tax return, even if it's $1. The IRS requires reporting of all dividend income. However, if your total income is below the filing threshold for your age and filing status, you may not owe tax overall, even though the dividend is technically taxable.

Can I deduct losses on dividend-paying stocks against non-may have access to dividend income?

Yes. Capital losses from selling stocks at a loss can offset capital gains and up to $3,000 of ordinary income per year, which includes non-may have access to dividends. Losses beyond that carry forward to future years.

Are non-may have access to dividends subject to the 3.8% net investment income tax?

Yes, if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). Non-may have access to dividends count as net investment income for this calculation, so high-income earners pay an additional 3.8% federal tax on top of their ordinary rate.

What if my brokerage reports a dividend as may have access to but it should be non-may have access to?

Contact your brokerage and ask them to issue a corrected 1099-DIV. If they don't, you can report the correct amount on your tax return and attach a statement explaining the discrepancy. Keep records of your purchase and sale dates to support your position if the IRS questions it.