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 non-may have access to dividends. may have access to dividends are taxed at lower rates (0%, 15%, or 20%, depending on your income). Non-may have access to dividends are taxed as ordinary income, which means they use your regular tax bracket — anywhere from 10% to 37% in 2024.
To may have access to for the lower rate, you must have held the stock for more than 60 days during the 121-day window centered on the ex-dividend date. If you don't meet that holding period, the dividend counts as non-may have access to income, and you pay your regular income tax rate instead.
Your total tax bill also depends on your filing status and total income for the year. A single filer in 2024 pays 0% on may have access to dividends if their income is under $47,025, 15% if it's between $47,025 and $518,900, and 20% if it exceeds $518,900. These thresholds are different for married filers and heads of household.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% based on your total income for the year, while non-may have access to dividends are taxed at your ordinary income tax rate (10% to 37%).
- You must hold a stock for more than 60 days within a 121-day window around the ex-dividend date to receive the lower may have access to dividend rate.
- Your tax bracket and filing status determine which rate applies to your dividends, not the company paying them.
- Dividends from mutual funds and ETFs follow the same rules as individual stock dividends, though the fund reports the breakdown on your tax forms.
What counts as a may have access to dividend
A may have access to dividend comes from a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange. The company must not be a real estate investment trust (REIT), a mutual fund that invests in other funds, or a passive foreign investment company (PFIC). Most ordinary stock dividends meet this test.
The holding period is the critical gate. You must own the stock for at least 61 days out of the 121-day period that starts 60 days before the ex-dividend date and ends 60 days after it. If you sell the stock before that 61-day window closes, the dividend becomes non-may have access to even if you held it for years before the ex-dividend date.
Some dividends never may have access to, no matter how long you hold the stock. Dividends from money market funds, bond funds, and preferred stock held for less than 90 days are always taxed as ordinary income. Your brokerage statement or the fund's year-end tax report will tell you which dividends may have access to and which did not.
How non-may have access to dividends are taxed
Non-may have access to dividends are added to your other income for the year and taxed at your marginal tax rate. If you earn $60,000 in salary and receive $5,000 in non-may have access to dividends, you report $65,000 in total income. That extra $5,000 is taxed at whatever bracket applies to the $60,000 to $65,000 portion of your income.
This means non-may have access to dividends can push you into a higher tax bracket. If you are a single filer earning $45,000 in wages and receive $10,000 in non-may have access to dividends, the first $2,025 of dividends is taxed at 12%, and the remaining $7,975 is taxed at 22%. The effective rate on those dividends is higher than if they were may have access to.
Non-may have access to dividends also count toward your modified adjusted gross income (MAGI), which can affect your may be able to access for other tax benefits like the Earned Income Tax Credit or education credits. may have access to dividends do not count toward MAGI for these purposes.
Tax rates for may have access to dividends by income level (2024)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,025 to $518,900 | Over $518,900 |
| Married Filing Jointly | Up to $94,050 | $94,050 to $583,750 | Over $583,750 |
| Head of Household | Up to $62,700 | $62,700 to $551,350 | Over $551,350 |
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 like Alaska, Florida, and Texas have no state income tax at all. Others like California tax dividends as ordinary income at rates up to 13.3%. A few states like Tennessee tax only dividend and interest income, not wages.
Your city or county may also impose a local income tax on dividends. New York City, for example, taxes dividends at rates up to 3.876% on top of state and federal tax. Check your state's tax authority website or your most recent state tax return to find your rate.
The federal tax brackets shown above do not include state or local tax. If you live in a high-tax state and receive significant dividends, your total tax bill can be substantially higher than the federal rate alone.
How to report dividends on your tax return
Your brokerage or mutual fund company sends you a Form 1099-DIV by January 31 each year. This form breaks down your dividends into may have access to and non-may have access to amounts, and it lists any capital gains distributions. You report the may have access to dividend amount on Schedule B (if you have more than $1,500 in dividends or interest) or directly on Form 1040, line 5b.
Non-may have access to dividends go on line 5a of Form 1040 and are added to your ordinary income. If you have a large number of dividend-paying investments, you may need to file Schedule B to list them all. Your tax software will usually handle this automatically if you enter the 1099-DIV information.
Keep your 1099-DIV forms for at least three years. If the IRS questions your return, you will need to show that the amounts match what your brokerage reported. If you did not receive a 1099-DIV but you know you received dividends, contact the company that paid them and request a corrected form.
Dividends in retirement accounts
Dividends earned inside a traditional IRA, Roth IRA, or 401(k) are not taxed in the year you receive them. You do not report them on your tax return, and the may have access to versus non-may have access to distinction does not apply. The tax is deferred until you withdraw money from the account.
In a Roth IRA, may have access to dividends and all other growth are never taxed, as long as you follow the withdrawal rules. In a traditional IRA or 401(k), withdrawals are taxed as ordinary income at your rate in the year you take the money out, regardless of whether the dividends inside were may have access to.
This is one reason retirement accounts are valuable for dividend investors. You can reinvest dividends without worrying about the tax bill each year, and the money compounds tax-free until withdrawal.
Frequently Asked Questions
Do I have to pay tax on dividends I reinvest?
Yes. Reinvested dividends are still income in the year you receive them, even if you do not take the cash. Your brokerage reports the full amount on your 1099-DIV, and you owe tax on it at the may have access to or non-may have access to rate. The fact that you bought more shares with the money does not change the tax.
What if I sold the stock before the ex-dividend date but still received the dividend?
If you sold before the ex-dividend date, you should not have received the dividend at all. The new owner gets it instead. If you did receive one by mistake, contact your brokerage immediately. If you sold after the ex-dividend date, you are may have access to to the dividend and must report it as income, but it will likely be non-may have access to because you did not hold the stock long enough.
Are foreign dividends taxed differently?
Dividends from foreign corporations are taxed the same way as U.S. dividends if the stock trades on a U.S. exchange and meets the holding period. Some foreign countries also tax dividends at the source, and you may be able to claim a foreign tax credit on your U.S. return to avoid double taxation. Consult a tax professional if you hold significant foreign investments.
Do I owe self-employment tax on dividends?
No. Dividends are not subject to self-employment tax, even if you are self-employed. Only net earnings from self-employment (roughly, your business profit) trigger self-employment tax. Dividend income is taxed only as income tax at the rates described above.