Dividend tax rates depend on how long you held the stock and your total income for the year
The tax you pay on dividends is not a flat rate. The Internal Revenue Service (IRS) taxes dividends in two different ways depending on the type of dividend and how long you owned the stock. may have access to dividends — dividends from stocks you held for more than 60 days — are taxed at the long-term capital gains rate, which ranges from 0% to 20%. Ordinary dividends — dividends from stocks you held for 60 days or fewer, or dividends from certain investments like bonds — are taxed as regular income at your ordinary income tax rate, which ranges from 10% to 37%.
Your actual rate depends on your filing status and total taxable income for the year. A person in the 22% income tax bracket might pay 15% on may have access to dividends, while someone in the 37% bracket pays 20%. The IRS publishes new tax brackets each year, and they shift based on inflation.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income; ordinary dividends are taxed at your regular income tax rate of 10% to 37%.
- You must hold a stock for more than 60 days around the dividend payment date for the dividend to count as may have access to.
- Your brokerage will report dividend income to the IRS on Form 1099-DIV, and you report it on your tax return using Schedule B or Schedule D.
- State and local taxes on dividends vary by location; some states tax dividends as income, others do not tax them at all.
- Dividend income counts toward your total income for the year, which can affect whether you owe taxes and what tax bracket you fall into.
The difference between may have access to and ordinary dividends
The IRS created two categories of dividends to encourage long-term stock ownership. A may have access to dividend comes from a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you must have owned the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the date set by the company after which new buyers do not receive the upcoming dividend payment.
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. It also includes dividends from stocks you held for 60 days or fewer. Ordinary dividends are taxed as ordinary income, the same way wages or self-employment income are taxed.
Your brokerage will sort this for you. When you receive Form 1099-DIV in January, it will list may have access to dividends separately from ordinary dividends. You do not have to calculate which category each dividend falls into yourself.
Tax brackets for may have access to dividends in 2024
may have access to dividend tax rates are tied to your income tax bracket, but they are lower than the ordinary income rates. For 2024, the may have access to dividend rates are:
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $47,025 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $47,025 to $291,875 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $291,875 | Over $551,350 |
These thresholds change each year. The IRS adjusts them for inflation and publishes updated brackets in late 2023 for the following tax year. If your total taxable income falls in the 0% bracket, you owe no federal tax on may have access to dividends. If it falls in the 15% bracket, you pay 15% on may have access to dividends. The same income that determines your ordinary tax rate determines your may have access to dividend rate.
How state and local taxes affect what you owe
Federal tax is only part of the picture. Nine states do not tax dividend income at all: Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, South Dakota, Tennessee, and Texas. In these states, you owe federal tax on dividends but no state income tax.
Every other state taxes dividends as income. Some states tax may have access to and ordinary dividends at the same rate as wages. Others, like California and New York, tax all dividends at the ordinary income rate regardless of how long you held the stock. A few states offer preferential rates for long-term capital gains but not for dividends. Your state tax rate ranges from roughly 1% to 13% depending on where you live and your income level.
If you live in a city or county that collects local income tax — cities in Ohio, Pennsylvania, and a few other states do — you may owe local tax on dividends as well. Check your state's revenue department website to learn what applies where you live.
How to report dividend income on your tax return
Your brokerage sends you Form 1099-DIV by January 31 each year. This form lists all dividends paid to you during the previous year, broken down by type. You report this income on your federal tax return using either Schedule B (if you have less than $1,500 in interest and dividend income) or Schedule D (if you have more than that, or if you sold securities at a gain or loss).
If you use tax software, it will walk you through entering the information from your 1099-DIV. If you file by hand or work with a tax preparer, bring the 1099-DIV with you. The IRS receives a copy of your 1099-DIV directly from your brokerage, so the numbers you report must match what the brokerage reported.
Dividend income is added to your other income to calculate your total taxable income for the year. This total determines which tax bracket you fall into and whether you owe any tax at all. If your dividend income pushes you into a higher bracket, some of your other income may be taxed at a higher rate as well.
What happens if you do not report dividend income
The IRS matches the 1099-DIV your brokerage sends to the IRS against the income you report on your tax return. If you do not report dividend income, the IRS will notice the mismatch. You may receive a notice asking you to explain the discrepancy, and you will owe back taxes plus interest and penalties.
Even if you owe no tax because your income is below the filing threshold, you should still report the dividend income on your return. Reporting it correctly prevents the IRS from sending you a notice later and protects you if you are ever audited.
Frequently Asked Questions
Do I owe taxes on dividends if I reinvest them?
Yes. Whether you take the dividend as cash or reinvest it in more shares, the IRS treats it as income in the year you receive it. You owe tax on the full amount of the dividend, regardless of what you do with the money afterward.
What is the difference between a 1099-DIV and a 1099-INT?
Form 1099-DIV reports dividends from stocks and mutual funds. Form 1099-INT reports interest income from bonds, savings accounts, and CDs. Interest is always taxed as ordinary income, never at the lower may have access to dividend rates. Your brokerage will send you whichever form applies to the income you earned.
Can I reduce my dividend taxes by holding stocks in a retirement account?
Yes. Dividends earned inside a traditional IRA, Roth IRA, or 401(k) are not taxed in the year you receive them. In a traditional account, you pay tax when you withdraw the money in retirement. In a Roth account, you pay no tax on the withdrawals at all. This is one reason people hold dividend-paying stocks in retirement accounts.
Do I owe taxes on dividends from foreign stocks?
Yes, you owe federal tax on dividends from foreign corporations that trade on U.S. exchanges. Some foreign countries also tax dividends, and you may owe tax to both countries. The U.S. offers a foreign tax credit to prevent double taxation, but you must report the foreign tax on your return to claim it.