Dividend income is taxed differently depending on how long you held the stock and what type of dividend it is

The tax you pay on dividends depends on two things: whether the dividend is may have access to or ordinary, and your income tax bracket. may have access to dividends — paid by U.S. corporations on stock you held for more than 60 days — are taxed at lower rates: 0%, 15%, or 20%, depending on your total income. Ordinary dividends are taxed as regular income at rates from 10% to 37%. Most dividends from large, established companies are may have access to. Dividends from real estate investment trusts (REITs), bonds, and preferred stock are usually ordinary.

You report dividend income on your tax return in the year you receive it, even if you reinvest it. The IRS requires you to file by April 15 of the following year. Your brokerage sends you a Form 1099-DIV in January showing what you received, and you use that to fill out Schedule B (if dividends exceed $1,500) or report them directly on your 1040.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% based on your income; ordinary dividends are taxed at your regular income tax rate of 10% to 37%.
  • A dividend is may have access to only if you held the stock for more than 60 days around the ex-dividend date, and the company is a U.S. corporation or may have access to foreign corporation.
  • You owe tax on dividends in the year you receive them, whether you take the money or reinvest it into more shares.
  • Your brokerage reports all dividends on Form 1099-DIV, which you receive by January 31 and use to file your tax return by April 15.

may have access to versus ordinary dividends: which rate applies to you

The difference between may have access to and ordinary dividends is the tax rate you pay. may have access to dividends use the long-term capital gains rates: 0% if your income falls in the lowest two brackets, 15% for middle-income filers, and 20% for high earners. In 2024, the 15% rate applies to single filers with income between roughly $47,000 and $518,000, and to married couples filing jointly between roughly $94,000 and $583,000. The exact thresholds change each year.

Ordinary dividends are taxed as regular income at your marginal rate — the same rate you pay on wages or self-employment income. For 2024, that ranges from 10% (lowest bracket) to 37% (highest bracket). If you are in the 24% tax bracket, an ordinary dividend is taxed at 24%, not 15%.

To may have access to for the lower rate, you must meet three conditions: the dividend must come from a U.S. corporation or a may have access to foreign corporation; you must have held the stock for more than 60 days during the 121-day window centered on the ex-dividend date; and the dividend cannot be from certain sources like money market funds or tax-exempt securities. If you fail any condition, the dividend is ordinary.

How the 60-day holding period works

The IRS counts 60 days before and after the ex-dividend date — the date by which you must own the stock to receive the dividend. If you buy stock on the ex-dividend date or later, you do not receive that dividend. If you sell the stock within 60 days of the ex-dividend date, the dividend does not may have access to.

The 121-day window runs from 60 days before the ex-dividend date to 60 days after it. You must hold the stock for more than 60 days within that window. If you bought the stock 50 days before the ex-dividend date and held it 70 days after, you meet the requirement. If you bought it 70 days before and sold it 50 days after, you do not — you held it only 120 days total, and fewer than 60 of those days were after the ex-dividend date.

Days you did not own the stock do not count. If you sold covered calls or bought protective puts on the stock, those positions can shorten your holding period for tax purposes. The IRS treats certain hedging strategies as reducing your ownership risk, which disqualifies the dividend.

When you owe tax and how to report it

You owe tax on dividends in the year you receive them. If your brokerage automatically reinvests dividends into new shares, you still owe tax that year on the cash value of those shares — you do not get to defer the tax until you sell. This is true even if you never see the money.

Report dividends on your federal tax return using Form 1099-DIV, which your brokerage mails by January 31. If your total dividends are $1,500 or less, you can report them directly on line 5b of Form 1040. If they exceed $1,500, you must use Schedule B to list each dividend-paying security separately. You then transfer the total to Form 1040.

Separate your may have access to and ordinary dividends on Schedule B. Your tax software usually does this automatically if you enter the 1099-DIV data correctly. The IRS uses the may have access to total to calculate your tax at the lower rate; the ordinary total is added to your other income and taxed at your marginal rate.

State and local taxes on dividends

Most states tax dividend income as regular income at their state income tax rate. A few states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax at all. New Hampshire and Tennessee tax only dividend and interest income, not wages.

If you live in a state with income tax, you report dividends on your state return the same way you report them federally. Some states conform to federal rules about may have access to versus ordinary dividends; others do not. A few states offer tax breaks for dividends from in-state companies or for long-term shareholders. Check your state's tax department website or a tax professional for the rules in your state.

Local income taxes in cities like New York, Columbus, and Philadelphia also tax dividends. The rate varies by city and is usually 1% to 4% of income. You report it separately on your local return, which is due at the same time as your federal return.

Dividends from foreign stocks and special situations

Dividends from foreign corporations are usually taxed as ordinary income, even if you held the stock for more than 60 days. The exception is dividends from may have access to foreign corporations — broadly, large, publicly traded companies in countries with tax treaties with the United States. Your brokerage should identify these on the 1099-DIV.

If you paid foreign taxes on the dividend, you may be able to claim a foreign tax credit on Form 1118 instead of deducting the tax. The credit is often more valuable than a deduction, but it requires additional paperwork. Consult a tax professional if you hold significant foreign stock.

Dividends from REITs, master limited partnerships (MLPs), and preferred stock are almost always ordinary income. Some preferred stock dividends may may have access to for the lower rate if the issuer is a U.S. corporation and you meet the holding period, but this is rare. REIT dividends are ordinary by law. MLP dividends are reported on Schedule K-1, not 1099-DIV, and are taxed as partnership income.

Frequently Asked Questions

Do I owe tax on dividends if I reinvest them?

Yes. The IRS taxes dividends in the year you receive them, regardless of whether you take the cash or reinvest it into more shares. The tax is based on the cash value of the dividend, not on whether you actually see the money. You report the full amount on your tax return.

What if my dividend income is very small?

You still report it on your tax return if your total income exceeds the filing threshold for your age and filing status. For 2024, a single person under 65 must file if income exceeds $14,600. If your dividend income is below that threshold and you have no other income, you may not have to file, but filing may still benefit you if you paid taxes withheld or are due a refund.

Can I deduct losses from dividend-paying stocks?

Yes, but only if you sell the stock at a loss. The loss is a capital loss, not a dividend deduction. You can use capital losses to offset capital gains dollar-for-dollar, and up to $3,000 of losses can offset other income. Losses beyond that carry forward to future years. Holding a losing stock and collecting dividends does not create a deduction.

What happens if I receive a dividend and sell the stock before the ex-dividend date?

You do not receive the dividend. The ex-dividend date is the cutoff — if you sell on or after that date, the buyer receives the dividend, not you. The stock price typically drops by roughly the dividend amount on the ex-dividend date to reflect this transfer.

Do I report dividends differently if I inherit stock?

Inherited stock receives a "step-up in basis" to its value on the date of death. Dividends paid after you inherit are reported as your income in the year you receive them. Dividends paid before you inherited are the responsibility of the estate or the previous owner. Your brokerage will send you a 1099-DIV for dividends you received as the owner.