Dividends are taxed as income, but the rate depends on what kind of dividend you receive and how long you held the stock
The tax you pay on dividends falls into two categories: ordinary dividends and may have access to dividends. Ordinary dividends are taxed at your regular income tax rate, which ranges from 10% to 37% depending on your total income. may have access to dividends get a lower rate — 0%, 15%, or 20% — if you meet holding requirements. The difference between the two can save you hundreds or thousands of dollars per year.
Your brokerage firm reports all dividends to the IRS on a Form 1099-DIV, which you receive by January 31 each year. You report this income on your tax return whether or not you reinvest the dividends. The IRS does not care whether you spent the money or let it compound — if you received it, you owe tax on it.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% if you held the stock for at least 60 days around the payment date; ordinary dividends are taxed at your full income tax rate.
- Your brokerage sends you a Form 1099-DIV by January 31, and you must report all dividend income on your tax return even if you reinvested it.
- Dividends from stocks, mutual funds, and ETFs are treated differently than interest from bonds or savings accounts, which are always taxed as ordinary income.
- You owe tax on dividends in the year you receive them, not in the year you sell the stock, so timing matters for tax planning.
The difference between may have access to and ordinary dividends
A may have access to dividend is a payment from a U.S. corporation or may have access to foreign corporation that meets the IRS holding-period rule. You must own the stock for at least 60 days during the 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 upcoming dividend payment.
Most dividends from large U.S. companies and many mutual funds or ETFs that hold those stocks are may have access to. Your brokerage will tell you on the 1099-DIV which dividends are may have access to and which are ordinary. If you are unsure, check the fund prospectus or call the company's investor relations line.
Ordinary dividends include payments from real estate investment trusts (REITs), master limited partnerships (MLPs), preferred stock in some cases, and stocks you held for fewer than 60 days. They are also taxed as ordinary income if you received them from a corporation that does not meet IRS requirements. Ordinary dividends are added to your wages and other income and taxed at your marginal rate — the same rate you pay on your salary.
Tax rates for may have access to dividends by income level
The tax rate on may have access to dividends depends on your total taxable income for the year, not just the dividend amount. The IRS sets income brackets that change each year. For 2024, the brackets are:
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,975 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,975 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These brackets include all your income — wages, capital gains, and dividends. If you earn $50,000 in wages and receive $5,000 in may have access to dividends, your total taxable income is $55,000. The first $47,025 of dividends is taxed at 0%, and the remaining $7,975 is taxed at 15%. The brackets shift each year for inflation, so check the IRS website or your tax software for the current year.
How ordinary income tax rates apply to non-may have access to dividends
Ordinary dividends are taxed at your marginal income tax rate, which ranges from 10% to 37% in 2024. These rates also depend on your total income and filing status. A single filer earning $50,000 in wages and $5,000 in ordinary dividends pays tax on the full $55,000 at ordinary rates — roughly 12% on the dividend portion, not 0% or 15%.
The difference adds up quickly. A $10,000 ordinary dividend costs a middle-income earner roughly $1,200 in federal tax. The same $10,000 in may have access to dividends costs $1,500 at the 15% rate, or nothing at the 0% rate if your income is low enough. This is why holding periods matter and why some investors track their purchase dates carefully.
State and local taxes on dividends
Most states tax dividend income, though the rate and rules vary widely. Some states tax may have access to and ordinary dividends at the same rate as ordinary income. Others offer a reduced rate or exemption for may have access to dividends. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividend income at all.
If you live in a state with income tax, your state tax bill on dividends can be substantial. A $10,000 dividend in California is taxed at the federal rate plus the state rate, which can total 30% or more for high earners. Check your state's tax authority website or speak with a tax professional to understand your state's rules.
When you owe tax on dividends you reinvest
You owe federal and state income tax on dividends in the year you receive them, regardless of whether you spend the money or reinvest it. If your brokerage automatically reinvests dividends into new shares, you still report the full dividend amount on your tax return. The cost basis of those new shares is the amount of the dividend, not zero.
This matters when you eventually sell. If you receive $1,000 in dividends and reinvest them to buy 10 new shares at $100 each, your cost basis in those 10 shares is $1,000. When you sell them later, you calculate your capital gain or loss based on that $1,000 cost basis. Keeping records of reinvested dividends helps you avoid overpaying capital gains tax when you sell.
Dividends from mutual funds and ETFs
Mutual funds and exchange-traded funds (ETFs) that hold dividend-paying stocks pass those dividends through to you. The fund reports the dividends on your 1099-DIV, broken down by type — may have access to dividends, ordinary dividends, and sometimes capital gain distributions. You report each type according to its tax treatment.
A fund that holds mostly large U.S. stocks will generate mostly may have access to dividends. A fund that holds REITs, bonds, or foreign stocks will generate mostly ordinary dividends or interest. Read the fund's annual report or prospectus to understand what types of income it produces. This helps you decide whether to hold the fund in a taxable account or a tax-deferred account like an IRA.
Frequently Asked Questions
Do I owe tax on dividends if I reinvest them automatically?
Yes. The IRS taxes dividends in the year you receive them, whether you spend the money or reinvest it in new shares. Your brokerage reports the full amount on your 1099-DIV, and you report it on your tax return. Reinvestment does not defer or eliminate the tax.
How do I know if a dividend is may have access to or ordinary?
Your brokerage reports this on your 1099-DIV, with may have access to and ordinary dividends listed separately. If you are unsure, check the company's investor relations website or the fund prospectus. The holding-period rule is the key: you must own the stock for at least 60 days around the ex-dividend date for the dividend to be may have access to.
What if I sell the stock before the ex-dividend date?
You do not receive the dividend at all. The new owner receives it instead. If you sell after the ex-dividend date but before the payment date, you still receive the dividend because you owned the stock on the ex-dividend date. The payment date is when the cash hits your account, but the ex-dividend date is what matters for tax purposes.
Are dividends from foreign stocks taxed differently?
Dividends from foreign corporations are usually taxed as ordinary income unless the foreign corporation qualifies under IRS rules. Some countries withhold tax on dividends paid to U.S. residents, and you may be able to claim a foreign tax credit on your return. Consult a tax professional if you hold significant foreign stock.
Can I deduct dividend losses?
No. Dividends are income, not deductible expenses. If a stock pays a dividend and then drops in value, you still owe tax on the dividend. The loss is a separate capital loss that you can use to offset capital gains or up to $3,000 of ordinary income per year.