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 IRS taxes dividends in two different ways depending on how long you owned the stock before it paid you. may have access to dividends — from stocks you held for more than 60 days around the payment date — are taxed at lower rates: 0%, 15%, or 20%, based on your income bracket. Nonqualified dividends — from stocks held 60 days or fewer — are taxed as ordinary income at your regular tax rate, which can be 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

Your income bracket for dividend tax is not the same as your wage income bracket. The IRS stacks dividends on top of your other income to determine which rate applies. If you earn $50,000 in wages and receive $10,000 in may have access to dividends, the dividends are taxed using the brackets that apply to your combined $60,000 income. This means your first dollars of dividends might be taxed at 0%, and later dollars at 15%, depending on where the income threshold falls.

Key Takeaways

  • may have access to dividends from stocks held longer than 60 days are taxed at 0%, 15%, or 20%; nonqualified dividends are taxed at your ordinary income rate.
  • Your dividend tax bracket is determined by adding dividends to your other income, not by treating them separately.
  • You report dividends on your tax return using Form 1099-DIV from your brokerage, which lists may have access to and nonqualified amounts separately.
  • Some dividends — from certain mutual funds, REITs, and master limited partnerships — are taxed differently and may not may have access to for the lower rates.
  • State and local taxes on dividends vary by location and can add 0% to over 13% depending on where you live and work.

How the IRS classifies may have access to versus nonqualified dividends

The 60-day holding period is the main dividing line. You must own the stock for at least 61 days during a 121-day window centered on the ex-dividend date — the date by which you must own the stock to receive the payment. If you bought the stock on the ex-dividend date and sold it 30 days later, those dividends are nonqualified. If you bought it 90 days before the ex-dividend date and still own it 30 days after, they are may have access to.

The holding period does not reset if you sell and buy the same stock back. If you sell a stock at a loss, wait 30 days, and buy it again, the IRS treats this as a wash sale — you cannot claim the loss, and the holding period for the new purchase does not include the time you held the old one. This rule exists to prevent people from harvesting losses while keeping their dividend income may have access to.

Some dividends never may have access to, no matter how long you hold the stock. Dividends from money market funds, bonds, and preferred stock issued before 2003 are always nonqualified. Dividends from real estate investment trusts (REITs) and certain mutual funds that invest in foreign stocks may also be nonqualified or partially nonqualified — your brokerage will tell you which on Form 1099-DIV.

Federal tax brackets for may have access to dividends in 2024

The 0% bracket for may have access to dividends applies to single filers with taxable income up to $47,025 and married couples filing jointly up to $94,050. This means if your total income — wages, capital gains, and dividends combined — falls below these thresholds, you owe no federal tax on may have access to dividends. The 15% bracket applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Income above those amounts is taxed at 20%.

These brackets change each year for inflation. The IRS publishes updated brackets in late 2023 for the following tax year. If you expect to receive a large dividend payment, you can estimate your tax bracket by adding the dividend amount to your expected wages and other income, then checking the current year's tax tables on the IRS website.

Nonqualified dividends use the ordinary income brackets, which are wider and start lower. The 10% bracket for single filers covers income up to $11,600 in 2024, and the 12% bracket covers income up to $47,150. Because nonqualified dividends are taxed at these higher rates, the difference between may have access to and nonqualified treatment can be substantial — sometimes 5 to 20 percentage points depending on your income.

State and local taxes on dividends

Most states tax dividend income as ordinary income at their regular tax rates. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). The remaining 41 states tax dividends at rates ranging from less than 1% to over 13%.

Some states offer preferential rates for capital gains or dividends. Illinois taxes only capital gains, not dividends. Louisiana and Mississippi offer reduced rates on certain types of dividend income. A few states — including Vermont and Connecticut — have higher tax rates on capital gains and dividends than on wages. If you live in a high-tax state and receive substantial dividends, state tax can add significantly to your federal bill.

Local taxes also apply in some cities and counties. New York City, for example, taxes residents on dividend income at rates up to 3.876% in addition to state and federal tax. If you moved during the year or work in a different state than you live in, you may owe tax to multiple jurisdictions. Your brokerage will not withhold state or local tax automatically — you are responsible for paying it when you file your state return or through estimated tax payments.

How dividend income is reported on your tax return

Your brokerage sends you Form 1099-DIV by January 31 each year, listing all dividends paid during the previous year. The form separates may have access to dividends (Box 1b) from nonqualified dividends (Box 1a). You report may have access to dividends on Schedule D (Capital Gains and Losses) and nonqualified dividends on Form 1040, line 5b. If you received dividends from multiple brokerages, you will receive multiple 1099-DIV forms — you must add them all together and report the total.

The brokerage also reports the dividends to the IRS, so the IRS knows what you received. If you fail to report dividends on your return, the IRS will catch the discrepancy and send you a notice. You should keep your 1099-DIV forms for at least three years in case you are audited.

If your total dividends and interest exceed $1,500, you must also file Schedule B (Interest and Ordinary Dividends) to list each source. If you have only one or two dividend-paying investments, this is straightforward. If you have many, your tax software will usually handle it automatically.

Dividend withholding and estimated taxes

Brokerages do not automatically withhold federal income tax on dividends the way employers do on wages. The dividend is paid to you in full, and you are responsible for paying tax when you file your return. If you expect to owe a large amount, you can ask your brokerage to withhold tax from your dividends — usually 10%, 15%, 20%, or 25% — to avoid a big bill at tax time.

If you owe more than $1,000 in taxes for the year and did not have enough withheld during the year, you may owe an underpayment penalty. To avoid this, you can make quarterly estimated tax payments to the IRS using Form 1040-ES. Estimated payments are due April 15, June 15, September 15, and January 15. If you receive most of your income from dividends rather than wages, estimated payments are the main way you pay tax throughout the year.

Special dividend situations and different tax treatment

Dividends from real estate investment trusts (REITs) are almost always nonqualified, even if you hold the stock for years. REIT dividends are taxed at your ordinary income rate. Some REIT dividends are also subject to the 3.8% net investment income tax if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

Dividends from master limited partnerships (MLPs) and certain other pass-through entities are reported on Schedule K-1, not Form 1099-DIV. These dividends may include a return of capital, which reduces your cost basis in the investment rather than being taxed as income. The tax treatment is more complex, and you should consult a tax professional if you own MLPs.

Mutual funds sometimes pay dividends that include short-term capital gains, which are taxed as ordinary income even if you held the fund for years. Your fund's annual report will break down what portion of the dividend is may have access to, nonqualified, and short-term capital gain. Some funds also pay return-of-capital dividends, which are not taxed in the year paid but reduce your basis and increase your taxable gain when you sell.

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 them in more shares. If your brokerage offers a dividend reinvestment plan (DRIP), you still receive a 1099-DIV showing the full dividend amount, and you owe tax on it even though you never saw the money.

What happens if I sell a stock right after the ex-dividend date?

If you held the stock for fewer than 61 days around the ex-dividend date, the dividends are nonqualified and taxed at your ordinary income rate. The holding period is strict — even one day short disqualifies the dividend. If you bought the stock specifically to capture a dividend and planned to sell immediately, the dividends will be taxed at your full tax rate, not the lower may have access to rate.

Can I deduct dividend losses?

No. Dividends are income, not deductible expenses. If a stock pays a dividend and then drops in value, you pay tax on the dividend and can claim a capital loss on the stock when you sell it. You cannot offset the dividend tax with the investment loss.

Are foreign dividends taxed differently?

Foreign dividends are generally taxed the same way as U.S. dividends — may have access to or nonqualified depending on holding period. However, foreign countries often withhold tax on dividends paid to U.S. residents. You can usually claim a foreign tax credit on your U.S. return for taxes withheld, reducing your U.S. tax bill. The rules are complex, and you should consult a tax professional if you own foreign stocks.

What if my brokerage sends me the wrong 1099-DIV?

Contact your brokerage immediately and ask for a corrected form. The brokerage will send you a corrected 1099-DIV and file a corrected version with the IRS. Do not file your tax return until you have the correct form — if the IRS receives a 1099-DIV showing different income than your return, you will receive a notice.