may have access to dividends are taxed at a lower rate than your regular income, but only if you hold the stock long enough and meet a few other conditions

A may have access to dividend is a payment from a company to its shareholders that meets specific rules set by the IRS. If your dividends meet those rules, you pay tax on them at the capital gains rate — which is usually 0%, 15%, or 20% depending on your total income — rather than at your ordinary income tax rate, which can be as high as 37%. The difference can save you hundreds or thousands of dollars per year.

The catch is that not every dividend counts as may have access to, and you have to hold the stock for a minimum number of days around the payment date. If you don't meet the holding period, the dividend gets taxed as ordinary income instead. This matters most if you trade stocks frequently or hold dividend-paying investments in a taxable account.

Key Takeaways

  • may have access to dividends are taxed at capital gains rates (0%, 15%, or 20%) instead of your ordinary income tax rate, which can save significant money on your tax bill.
  • You must hold the stock for at least 60 days within a 121-day window around the ex-dividend date for the dividend to count as may have access to.
  • Dividends from U.S. corporations and certain foreign corporations can be may have access to; dividends from REITs, master limited partnerships, and most foreign stocks do not may have access to.
  • If you sell the stock before meeting the holding period, or if you use margin or options to hedge your position, the dividend loses its may have access to status.
  • Your brokerage will report may have access to and non-may have access to dividends separately on your 1099-DIV form, so you do not have to calculate this yourself.

The holding period rule that determines whether a dividend qualifies

The IRS requires you to hold the stock for a specific number of days to get the lower tax rate. You must own the shares for at least 60 days during a 121-day period that starts 60 days before the ex-dividend date and ends 60 days after it. The ex-dividend date is the cutoff — if you buy the stock on or after that date, you do not receive the dividend at all.

This rule exists to prevent traders from buying a stock just before the dividend payment, collecting the cash, and selling immediately. If you hold the stock for fewer than 60 days in that window, the IRS treats the dividend as ordinary income. The same applies if you use options or margin to hedge your position during the holding period — the IRS sees that as reducing your risk and disqualifies the dividend.

Your brokerage tracks this automatically and reports it on your tax forms, but it is worth understanding because it affects your trading decisions. If you are thinking about selling a dividend stock, check the ex-dividend date first — selling just before it means you do not get the dividend at all, but selling just after it might disqualify the dividend if you have not held long enough.

Which companies' dividends actually may have access to

Dividends from U.S. corporations almost always may have access to, as long as you meet the holding period. Dividends from certain foreign corporations also may have access to if the company is incorporated in a U.S. possession or if the U.S. has a tax treaty with the country where the company is incorporated. Your brokerage will tell you which dividends are may have access to when you receive them.

Several types of investments do not pay may have access to dividends no matter how long you hold them. REITs (real estate investment trusts) pay ordinary income dividends. Master limited partnerships (MLPs) do the same. Dividends from most foreign stocks do not may have access to unless the company meets the tax treaty test. Money market funds and bond funds pay interest, not dividends, so they are taxed as ordinary income. If you own mutual funds or ETFs, check the fund's prospectus or fact sheet to see what portion of its distributions count as may have access to.

How your tax bracket affects the actual rate you pay

The capital gains rate you pay on may have access to dividends depends on your total taxable income for the year, not on how much the dividend itself is. The IRS has three capital gains brackets: 0%, 15%, and 20%. For 2024, single filers in the 0% bracket have taxable income up to $47,025; the 15% bracket runs from $47,026 to $518,900; and anything above that is taxed at 20%.

This means you might pay 0% tax on may have access to dividends if your total income is low enough, even if you are in the 12% or 22% ordinary income bracket. Conversely, if your income is very high, you pay 20% on may have access to dividends while paying 37% on wages or business income. The brackets adjust each year for inflation, so check the current year's numbers when you are planning.

If you receive both may have access to and non-may have access to dividends, your brokerage will separate them on your 1099-DIV form. You report them on different lines of your tax return, and they are taxed at different rates. This is one reason to keep your brokerage statements — they show which dividends may have access to and which did not.

What happens if you do not meet the holding period

If you sell the stock before holding it for 60 days in the required window, or if you use options to protect your position, the dividend becomes a non-may have access to dividend. Non-may have access to dividends are taxed as ordinary income at your regular tax rate, which is usually higher than the capital gains rate. The difference can be substantial — if you are in the 24% tax bracket and the dividend would have been taxed at 15% if may have access to, you lose 9 percentage points on that income.

Some traders intentionally accept this trade-off because they want to exit a position quickly. Others do not realize they have disqualified the dividend until they see their tax bill. The key is to know the ex-dividend date and the holding period requirement before you decide to sell.

If you own dividend stocks in a retirement account like a 401(k) or IRA, this does not matter — may have access to and non-may have access to dividends are taxed the same way inside those accounts, and you do not pay tax on them until you withdraw the money. The may have access to dividend rules only apply in taxable brokerage accounts.

How to find out which of your dividends may have access to

Your brokerage sends you a Form 1099-DIV each January showing all dividends you received in the previous year. Box 1a lists ordinary dividends; Box 1b lists may have access to dividends. If you received dividends from multiple companies or funds, they will all be listed separately. You use Box 1b when you file your tax return.

If you use tax software like TurboTax or TaxAct, you can enter the numbers directly from your 1099-DIV and the software will apply the correct tax rate. If you use a tax professional, give them the 1099-DIV and they will handle it. Do not try to reclassify dividends yourself — the IRS gets a copy of your 1099-DIV, and mismatches trigger audits.

If your brokerage made an error and reported a dividend as non-may have access to when it should have been may have access to (or vice versa), contact them and ask for a corrected 1099-DIV. They can issue an amended form if the mistake is on their end. If the error is yours — for example, you thought you held the stock long enough but did not — you cannot change the 1099-DIV, but you can file an amended tax return if you overpaid.

Frequently Asked Questions

Do I have to hold the stock for a full year for dividends to be may have access to?

No. You only need to hold the stock for 60 days within a 121-day window centered on the ex-dividend date. You can own it for just a few months total and still get the may have access to rate, as long as you do not sell before the 60-day holding period ends.

What if I buy a stock right before the ex-dividend date?

You will not receive the dividend at all. The ex-dividend date is the cutoff — if you buy on or after that date, the dividend goes to the previous owner. If you buy before the ex-dividend date but sell before holding for 60 days, you receive the dividend but it is taxed as ordinary income.

Are dividends from index funds may have access to?

It depends on the fund. Index funds that track U.S. stocks usually pay may have access to dividends, but you still have to meet the holding period for the fund shares themselves. Bond funds and money market funds pay interest, not dividends, so they are always taxed as ordinary income. Check your fund's prospectus or ask your brokerage.

Can I lose may have access to dividend status if I use a stop-loss order?

A stop-loss order by itself does not disqualify the dividend. However, if the stop-loss triggers and you sell before holding for 60 days, the dividend becomes non-may have access to. If you are concerned about this, you can place the stop-loss after the holding period ends.

Do I report may have access to dividends differently on my tax return?

Yes. may have access to dividends go on Schedule D (capital gains and losses) or are reported directly on your Form 1040 depending on your tax software. Non-may have access to dividends go on Schedule B (interest and ordinary dividends). Your tax software will guide you through this if you enter the 1099-DIV correctly.