Dividend tax depends on the type of dividend and how long you held the stock
The tax you pay on stock dividends falls into two categories: may have access to dividends and ordinary dividends. may have access to dividends are taxed at lower rates — the same rates as long-term capital gains. Ordinary dividends are taxed as regular income, at your full tax bracket rate. Which category your dividend falls into depends on the type of stock and how long you owned it before the dividend was paid.
The IRS sets the rates each year. As of 2024, may have access to dividend rates are 0%, 15%, or 20%, depending on your total income. Ordinary dividend rates match your income tax bracket, which can go as high as 37%. The difference between these two categories can mean hundreds or thousands of dollars in tax on the same dividend payment.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% if you held the stock for more than 60 days around the dividend payment date.
- Ordinary dividends are taxed at your full income tax rate, which ranges from 10% to 37% depending on your income.
- Dividends from mutual funds and ETFs can be either may have access to or ordinary, and the fund reports which is which on your tax form.
- You owe tax on dividends in the year they are paid to you, even if you reinvest them into more shares.
- Your brokerage sends you a Form 1099-DIV by January 31 that shows how much you received and what type each dividend was.
What makes a dividend "may have access to" versus "ordinary"
A may have access to dividend comes from a U.S. corporation or a may have access to foreign corporation, and you must have held the stock for more than 60 days during a 121-day window around the ex-dividend date. The ex-dividend date is the date set by the company — if you own the stock on or before that date, you receive the dividend. You need to hold it for at least 61 days total within the 121-day period (60 days before the ex-dividend date through 60 days after).
An ordinary dividend is any dividend that does not meet the may have access to rules. This includes dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most bond interest paid through a brokerage. It also includes dividends from stocks you held for 60 days or fewer. If you sell the stock before you meet the holding period, the dividend becomes ordinary even if you received it while you owned the stock.
Some dividends are never may have access to no matter how long you hold the stock. Dividends from tax-exempt organizations, dividends on shares you borrowed to short-sell, and dividends paid on stocks where you had a put or call option are always ordinary.
How mutual fund and ETF dividends are taxed
Mutual funds and exchange-traded funds (ETFs) distribute dividends they receive from their holdings. The fund itself does not pay tax on those dividends — instead, the tax passes through to you. The fund reports to you and the IRS how much of each distribution was may have access to dividend income and how much was ordinary dividend income.
Your holding period for the fund shares matters. If you held the fund for more than 60 days around the ex-dividend date, the may have access to portion of the distribution is taxed at the lower rate. If you held it for 60 days or fewer, even the may have access to portion of the distribution becomes ordinary income to you. This rule applies even if the underlying stocks in the fund were held long-term by the fund itself.
Some funds, particularly bond funds and money market funds, distribute mostly or entirely ordinary income. Growth funds and dividend-focused funds typically distribute a mix. Your fund's annual report or fact sheet will show the historical breakdown, though the exact mix changes year to year based on what the fund bought and sold.
When you owe tax on reinvested dividends
If you set your brokerage account to automatically reinvest dividends into new shares, you still owe tax on the full dividend amount in the year it was paid. The IRS treats reinvested dividends the same as dividends you received in cash — the tax is due whether or not you took the money out of your account.
This is one of the most common surprises for new investors. You may not see the cash, but you owe income tax on it. Your brokerage will report the dividend on your Form 1099-DIV, and that is the amount you report on your tax return, regardless of whether you reinvested it.
The reinvested shares become part of your cost basis in the fund or stock. When you eventually sell those shares, you will owe capital gains tax on any increase in value above the price you paid for them (which was the dividend amount). This means you could face both dividend tax and capital gains tax on the same original dividend payment over time.
Tax rates for may have access to dividends in 2024
may have access to dividends are taxed at three rates: 0%, 15%, or 20%. Which rate applies depends on your total taxable income for the year, not on the dividend amount itself. The income thresholds change each year and differ based on your filing status.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,051 to $583,750 | Over $583,750 |
| Head of Household | Up to $62,975 | $62,976 to $551,350 | Over $551,350 |
These thresholds include all your income — wages, self-employment income, capital gains, and dividends combined. If your total income pushes you into a higher bracket, some or all of your may have access to dividends may be taxed at 15% or 20% instead of 0%. You may also owe the Net Investment Income Tax (NIIT) of 3.8% on investment income if your modified adjusted gross income exceeds certain thresholds.
How to report dividends on your tax return
Your brokerage sends you a Form 1099-DIV by January 31 of the year after you receive the dividends. This form shows the total ordinary dividends in Box 1a, may have access to dividends in Box 1b, and other types of income in other boxes. You report these amounts on Schedule B (if you have more than $1,500 in interest or dividends) or directly on Form 1040 if you have less.
The 1099-DIV also reports any capital gains distributions the fund paid you, which are taxed as long-term capital gains regardless of how long you held the fund. These go on Schedule D, not with your dividend income. If you received dividends from multiple sources, you add up all the may have access to dividends and all the ordinary dividends across all your 1099-DIVs and report the totals.
Keep your 1099-DIVs and brokerage statements for at least three years. If you reinvested dividends, your brokerage statement shows the reinvestment transactions, which you may need to prove your cost basis if you sell the shares later. The IRS can ask for documentation of dividend income if your return is audited.
State and local taxes on dividends
Most states tax dividend income as regular income at your state income tax rate. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividend income at all. Other states tax dividends at a lower rate than wages, or tax only certain types of dividends.
If you live in a state that taxes dividends, you report the same dividend amounts on your state return that you reported on your federal return. Some states follow federal rules about may have access to versus ordinary dividends; others do not. Check your state's tax agency website or a tax professional in your state for the specific rules where you live.
Local taxes on dividends are rare but do exist in some cities and counties. If you live in a place with a local income tax, contact your local tax assessor to find out whether dividends are taxed locally and at what rate.
Frequently Asked Questions
Do I owe tax on dividends if I reinvest them?
Yes. The IRS taxes dividends in the year they are paid, whether you take the cash or reinvest it. Your brokerage reports the full dividend amount on your 1099-DIV, and that is what you report on your tax return. Reinvestment does not defer or avoid the tax.
What if I sold the stock before the ex-dividend date?
If you sold before the ex-dividend date, you do not receive the dividend at all — the new owner does. If you sold after the ex-dividend date but before the payment date, you still receive the dividend and owe tax on it, even though you no longer own the stock.
Are dividends from foreign stocks taxed differently?
Dividends from foreign corporations can be may have access to if the corporation is a may have access to foreign corporation (generally one incorporated in a U.S. possession or a country with a tax treaty with the U.S.). You must still meet the 60-day holding period. Some foreign dividends are subject to foreign withholding tax, which may reduce the amount you receive but can sometimes be claimed as a credit on your U.S. return.
How do I know if my dividend is may have access to or ordinary?
Your brokerage reports this on your 1099-DIV. Box 1b shows may have access to dividends; Box 1a shows ordinary dividends. If you hold the stock or fund through a mutual fund or ETF, the fund's annual report or tax information page will break down the may have access to and ordinary portions of each distribution.
Can I deduct dividend losses?
No. Dividends are income, not deductible expenses. If a stock pays a dividend and then drops in value, you owe tax on the dividend but cannot deduct the loss until you sell the stock. The loss is a capital loss, not a dividend deduction.