Dividend tax rates depend on how long you held the stock and your income level
The tax you pay on dividends falls into two categories: may have access to dividends and ordinary dividends. may have access to dividends are taxed at lower rates — 0%, 15%, or 20% depending on your total income for the year. Ordinary dividends are taxed as regular income, which means your rate could be anywhere from 10% to 37% depending on your tax bracket.
The difference between the two comes down to how long you owned the stock. If you held it for more than 60 days around the dividend payment date, the dividend is usually may have access to. If you held it for a shorter time, or if the company is a real estate investment trust (REIT) or a mutual fund paying certain distributions, the dividend counts as ordinary income.
Your actual tax bill also depends on your filing status and total income. A single filer in the 0% bracket for may have access to dividends earns less than $47,025 in 2024. The 15% bracket runs from $47,025 to $518,900. Anything above that is taxed at 20%. These income thresholds change each year.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% based on your income; ordinary dividends are taxed as regular income at rates up to 37%.
- You must hold a stock for more than 60 days around the dividend date for the dividend to count as may have access to.
- Your tax bracket for dividends is determined by your total income for the year, not just the dividend amount.
- REITs, mutual funds, and some corporate dividends are taxed as ordinary income even if you held them for years.
may have access to versus ordinary dividends: the holding period rule
The IRS requires you to own the stock for a specific window to get the lower may have access to dividend rate. You must hold it for more than 60 days during a 121-day period that starts 60 days before the ex-dividend date — the date the company stops paying dividends to new buyers. If you sell before that 60-day holding period is met, the dividend is ordinary income.
This rule exists to prevent people from buying stock just before a dividend payment and selling immediately after. If you bought a stock on Monday, collected a dividend on Wednesday, and sold on Thursday, that dividend would be taxed as ordinary income, not may have access to.
Some stocks never produce may have access to dividends. REITs must distribute 90% of their taxable income to shareholders, and those distributions are always taxed as ordinary income. Master limited partnerships (MLPs) and certain mutual funds also pay ordinary dividends. Check your 1099-DIV form or your brokerage statement to see how each dividend was classified.
How your tax bracket affects what you pay
may have access to dividend rates are lower than ordinary income rates, but they still depend on which tax bracket you fall into. The brackets for 2024 are:
| Tax Bracket | Single Filer Income | Married Filing Jointly Income | may have access to Dividend Rate |
|---|---|---|---|
| 10% | Up to $11,600 | Up to $23,200 | 0% |
| 12%–22% | $11,601–$47,025 | $23,201–$94,050 | 0% |
| 24%–32% | $47,026–$518,900 | $94,051–$583,750 | 15% |
| 35%–37% | Over $518,900 | Over $583,750 | 20% |
These thresholds are based on your total taxable income, not just dividends. If you earn $50,000 in wages and receive $5,000 in may have access to dividends, your total income is $55,000. That puts you in the 15% may have access to dividend bracket, so you pay 15% tax on the dividends.
Ordinary dividends follow your regular income tax brackets, which go from 10% to 37%. If you are in the 24% bracket for ordinary income, you pay 24% on ordinary dividends.
State and local taxes on dividends
Federal tax is only part of the picture. Most states tax dividend income, and the rate varies widely. Some states tax dividends at the same rate as ordinary income. Others have a flat tax or a separate rate for investment income. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividend income at all.
Some cities also tax investment income. New York City, for example, taxes dividends as part of your regular income. Check your state and local tax authority's website to find the rate that applies to you.
Your brokerage or mutual fund company will report your dividends on a 1099-DIV form, which you use when filing your tax return. The form separates may have access to dividends from ordinary dividends, making it easier to calculate what you owe.
Dividends from mutual funds and ETFs
Mutual funds and exchange-traded funds (ETFs) distribute dividends from the stocks they hold, but the tax treatment depends on the fund's holdings and how long you owned the fund shares. If the fund holds mostly stocks and distributes may have access to dividends from those stocks, you may receive may have access to dividends. If the fund holds bonds, REITs, or other investments, those distributions are ordinary income.
The fund company will tell you on your 1099-DIV how much of each distribution is may have access to and how much is ordinary. You do not need to track the holding period for each stock inside the fund — the fund does that work. However, you do need to have held the fund shares themselves for the required 60-day period to get the may have access to rate on fund distributions.
Some funds pay distributions that are classified as return of capital, which is neither may have access to nor ordinary income. These reduce your cost basis in the fund instead of being taxed immediately. Your 1099-DIV will show this separately.
Reinvested dividends and tax liability
If you set your dividends to reinvest automatically, you still owe tax on them in the year they are paid. Reinvestment does not delay the tax bill. You pay tax on the full dividend amount, even though the money stayed in your account and bought more shares.
When you eventually sell those reinvested shares, you will owe capital gains tax on any increase in value. Your cost basis includes both the original share price and the reinvested dividend amounts, so keep records of all reinvestment transactions. Your brokerage statement should show this information, but it is worth tracking separately in case you need to reference it later.
Frequently Asked Questions
Do I have to pay tax on dividends if I reinvest them?
Yes. The IRS taxes dividends in the year they are paid, regardless of whether you take the cash or reinvest it. Reinvestment does not defer the tax. You will owe tax on the full dividend amount, and later you will owe capital gains tax when you sell the shares that were purchased with those reinvested dividends.
What is the difference between may have access to and ordinary dividends on my 1099-DIV?
may have access to dividends are taxed at 0%, 15%, or 20% depending on your income. Ordinary dividends are taxed as regular income at rates up to 37%. Your 1099-DIV separates them into different boxes. Box 1a shows may have access to dividends; Box 1b shows ordinary dividends. The form also lists any capital gain distributions separately.
Can I avoid paying tax on dividends by holding the stock longer?
Holding longer than 60 days gets you the may have access to dividend rate, which is lower than the ordinary rate. But you still owe tax. There is no holding period that makes dividends tax-free, except in tax-advantaged accounts like IRAs or 401(k)s, where dividends grow without annual tax.
Are dividend taxes the same in every state?
No. Most states tax dividends as ordinary income, but rates vary. Eight states do not tax dividends at all. Some states have a flat tax or a separate rate for investment income. Check your state tax authority's website for the rate that applies to you.
What happens if I sell a stock before the 60-day holding period ends?
The dividend is taxed as ordinary income instead of may have access to income. This means you pay your regular income tax rate on it, which is typically higher than the may have access to dividend rate. The holding period is measured around the ex-dividend date, not the purchase date, so timing matters.