Yes, dividend income is taxable, but the tax rate depends on the type of dividend and your income level

Most dividends you receive from stocks or mutual funds are subject to federal income tax. The IRS treats different kinds of dividends differently — some are taxed at lower rates than your ordinary income, while others are taxed as regular income. Your brokerage will report what you received on a Form 1099-DIV, and you report it on your tax return. The amount you owe depends on whether the dividends are may have access to or ordinary, and on your total taxable income for the year.

State and local taxes may also apply to dividend income, depending on where you live. Some states tax dividends at your regular income tax rate; others exempt them entirely. This matters because your total tax bill includes federal, state, and sometimes local tax all together.

Key Takeaways

  • may have access to dividends are taxed at lower rates (0%, 15%, or 20%) that match long-term capital gains rates, while ordinary dividends are taxed as regular income at your marginal rate.
  • 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.
  • Your brokerage reports all dividends on Form 1099-DIV, which you receive by January 31 and must report on your tax return.
  • State and local taxes on dividends vary widely — some states tax them fully, others partially, and a few exempt them entirely.

may have access to dividends versus ordinary dividends

The IRS divides dividends into two categories, and the difference in tax rate can be substantial. may have access to dividends are taxed at the same rates as long-term capital gains: 0%, 15%, or 20%, depending on your income. Ordinary dividends are taxed at your regular marginal income tax rate, which ranges from 10% to 37% depending on your tax bracket.

Most dividends from U.S. corporations and certain foreign corporations may have access to for the lower rate. Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and some preferred stocks are usually taxed as ordinary income. Your brokerage will separate may have access to and ordinary dividends on your 1099-DIV, so you do not have to figure it out yourself.

The catch is that you have to meet a holding period requirement. You must own the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. If you buy a stock right before it pays a dividend and sell it right after, those dividends do not may have access to for the lower rate. This rule prevents people from collecting the tax benefit without actually holding the investment.

How the 1099-DIV works and what to report

Your brokerage sends you a Form 1099-DIV by January 31 for the previous year. This form lists all the dividends you received, broken down by type. Box 1a shows ordinary dividends; Box 1b shows may have access to dividends. Boxes 2a and 2b show capital gain distributions, which are taxed differently still. The form also reports any federal income tax withheld.

You report the amounts from your 1099-DIV on Schedule B (Interest and Ordinary Dividends) if your ordinary dividends exceed $1,500, or on Form 1040 directly if they do not. may have access to dividends go on a separate line of Form 1040 and are taxed at the preferential rates. If you have multiple brokerages or investment accounts, you will receive multiple 1099-DIVs, and you add them all together on your return.

The IRS receives a copy of your 1099-DIV at the same time you do, so the amount you report should match what your brokerage reported. If there is a discrepancy — for instance, if you sold shares and the dividend was paid to the buyer instead — you may need to file an amended return or contact your brokerage to correct it.

Tax brackets and how much you actually pay

The tax rate on may have access to dividends depends on which tax bracket you fall into. If your taxable income is below a certain threshold, your may have access to dividends are taxed at 0%. If it is above that but below a higher threshold, they are taxed at 15%. If your income exceeds the top threshold, they are taxed at 20%. These thresholds change each year and depend on your filing status (single, married filing jointly, head of household, and so on).

For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married couples filing jointly up to $94,050. The 15% rate applies to income above those amounts up to $518,900 (single) or $583,750 (married filing jointly). Income above those levels is taxed at 20%. These numbers shift annually for inflation, so check the IRS website or your tax software for the current year.

Ordinary dividends are taxed at your regular marginal rate, which means they are added to your other income and taxed at whatever bracket that total puts you in. If you are in the 24% bracket and receive $1,000 in ordinary dividends, you owe $240 in federal tax on those dividends (before considering state and local taxes).

State and local taxes on dividend income

Federal tax is only part of the picture. Most states tax dividend income, though the rate and rules vary. Some states tax dividends at your regular state income tax rate. Others tax them at a lower rate or exempt them entirely. A few states have no income tax at all, so residents pay no state tax on dividends.

States that currently exempt dividend income from state tax include Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states may offer partial exemptions or lower rates for certain types of dividends. If you live in a state with income tax, check your state tax authority's website or ask a tax professional about how dividends are treated in your state.

Local taxes on dividends are less common but do exist in some cities and counties. New York City, for instance, taxes dividend income as part of its local income tax. If you live in an area with local income tax, factor that into your total tax bill.

Dividends in retirement accounts and tax-deferred accounts

Dividends inside a traditional IRA, 401(k), or other tax-deferred account are not taxed when you receive them. You pay tax only when you withdraw money from the account in retirement. This is one reason these accounts are valuable — your dividends compound without being reduced by annual taxes.

Dividends in a Roth IRA are also not taxed when received, and if you follow the rules, they are not taxed when you withdraw them either. This makes Roth accounts especially powerful for dividend-paying investments over a long holding period.

Dividends in a regular taxable brokerage account are taxed every year, regardless of whether you reinvest them or take them as cash. This is why some investors prefer to hold dividend stocks in retirement accounts when possible.

What happens if you do not report dividend income

The IRS matches the 1099-DIV your brokerage sends to them against what you report on your tax return. If you do not report dividend income, the IRS will likely catch it and send you a notice. You will owe the tax you should have paid, plus interest and potentially penalties for underpayment.

Even small amounts of unreported dividend income can trigger an audit or correspondence. It is simpler and cheaper to report it correctly the first time. If you made a mistake on a prior return, you can file an amended return (Form 1040-X) to correct it.

Frequently Asked Questions

Do I have to report dividends if I only received a small amount?

Yes. There is no minimum threshold for reporting dividend income. Even $1 in dividends must be reported on your tax return. Your brokerage will issue a 1099-DIV for any dividends paid, and the IRS will receive a copy, so reporting is necessary to match their records.

Can I deduct investment losses against dividend income?

Yes, but only up to $3,000 per year against ordinary income. If your capital losses exceed $3,000, you can carry the excess forward to future years. Losses do not directly reduce dividend income on your return; instead, they reduce your overall taxable income.

What is the difference between a dividend and a capital gain?

A dividend is a payment a company makes to shareholders from its profits. A capital gain is the profit you make when you sell a stock for more than you paid for it. Both are taxable, but they are reported separately and may be taxed at different rates.

Do I owe taxes on reinvested dividends?

Yes. Whether you take dividends as cash or reinvest them automatically, you owe tax on the full amount in the year you receive them. Reinvesting does not defer the tax — it only changes how the money is used.

What if my dividend income pushes me into a higher tax bracket?

Dividend income is added to your other income to determine your tax bracket. If it pushes you into a higher bracket, your ordinary dividends are taxed at the higher rate, but may have access to dividends still use the preferential capital gains rates based on your total income level.