may have access to dividends are taxed at lower rates than ordinary income, but only if the stock meets holding requirements and comes from specific sources

A may have access to dividend is a payment from a corporation that the IRS taxes as a capital gain rather than as ordinary income. This matters because capital gains rates are lower — 0%, 15%, or 20% depending on your income — while ordinary dividend rates match your regular tax bracket, which can go as high as 37%. The difference can save you hundreds or thousands of dollars on your tax bill.

Not all dividends may have access to. The company must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange. You must also hold the stock for a minimum number of days around the payment date. If either condition fails, the dividend counts as ordinary income instead.

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 be significantly lower.
  • The stock must come from a U.S. corporation or a foreign corporation whose shares trade on a U.S. stock exchange.
  • You must hold the stock for at least 60 days during a 121-day window centered on the ex-dividend date for the dividend to count as may have access to.
  • Certain dividends never may have access to, including those from money market funds, real estate investment trusts, and most foreign corporations.
  • Your brokerage statement or tax software will usually identify may have access to dividends separately, but you should verify the holding period yourself.

The holding period requirement

The IRS requires you to own the stock for a specific window of time for each dividend to be may have access to. You must hold it 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 investors from buying stock just before a dividend payment and selling immediately after. If you buy on day 50 before the ex-dividend date and sell on day 10 after it, you have held it for only 60 days, which meets the minimum. But if you sell on day 9 after the ex-dividend date, you fall one day short and the dividend becomes ordinary income.

The holding period resets for each dividend payment. A stock can pay may have access to dividends one quarter and ordinary dividends the next if you do not hold it long enough before the second ex-dividend date. Your brokerage should track this automatically, but the burden of proof is on you if the IRS questions your return.

Which companies and funds pay may have access to dividends

Dividends from U.S. corporations almost always may have access to if you meet the holding requirement. This includes large-cap stocks, dividend aristocrats, and most index funds that hold U.S. stocks. Foreign corporations can also pay may have access to dividends, but only if their stock is traded on a U.S. exchange — for example, many Canadian banks and European companies trade on the NYSE or NASDAQ and their dividends may have access to.

Certain investments never pay may have access to dividends, no matter how long you hold them. Real estate investment trusts (REITs) pay ordinary dividends. Master limited partnerships (MLPs) pay ordinary income. Money market funds and bond funds pay interest that is taxed as ordinary income, not dividends. Dividends from foreign corporations that do not trade on a U.S. exchange are also ordinary income.

Mutual funds and exchange-traded funds (ETFs) that hold U.S. stocks pass through may have access to dividends to you, but the fund itself must have held the underlying stocks long enough. If a fund buys and sells stocks frequently, some of the dividends it receives may not may have access to, and those unqualified dividends flow through to you as ordinary income. The fund's year-end statement breaks this out for you.

How to verify may have access to dividend status on your tax forms

Your brokerage sends you a 1099-DIV form by January 31 each year. Box 1a shows total ordinary dividends; Box 1b shows may have access to dividends. If your brokerage has done the work correctly, you can use Box 1b directly on your tax return. However, you should spot-check a few dividends yourself, especially if you bought or sold shares near ex-dividend dates.

Pull up your trade history and the ex-dividend dates for each stock. Count backward 60 days from the ex-dividend date to find the start of the holding window. If you bought the stock after that window opened, or sold it before 60 days had passed after the ex-dividend date, the dividend should not be in Box 1b. If it is, contact your brokerage to request a corrected form.

Tax software like TurboTax and H&R Block will import the 1099-DIV data automatically. The software will apply the correct tax rate to may have access to dividends if you enter the form correctly. If you are unsure whether a dividend qualifies, it is safer to report it as ordinary income than to claim it as may have access to and face an audit.

What happens if you hold a stock through the ex-dividend date but sell before 60 days

If you buy a stock 50 days before the ex-dividend date, you receive the dividend payment, but it will not be may have access to because you did not hold the stock for 60 days after the ex-dividend date. The dividend is taxed as ordinary income. This is a common trap for investors who buy dividend stocks shortly before a payment and then sell to lock in gains.

Some investors try to work around this by buying back the stock after selling, but the IRS has a wash-sale rule that prevents this strategy. If you sell a stock at a loss and buy the same or a substantially identical stock within 30 days before or after the sale, you cannot deduct the loss. The rule does not directly affect dividend qualification, but it can complicate your tax situation if you are trying to manage both losses and dividend income.

Dividends from foreign stocks and ADRs

American Depositary Receipts (ADRs) are certificates that represent shares of foreign companies held by a U.S. bank. If the underlying foreign company is traded on a U.S. exchange and meets IRS requirements, dividends from the ADR can be may have access to. However, if the foreign company does not trade on a U.S. exchange, the dividend is ordinary income even if you buy the ADR on a U.S. exchange.

The company's country of incorporation also matters. Dividends from companies incorporated in countries that do not have a tax treaty with the United States may not may have access to, even if the stock trades on a U.S. exchange. Your brokerage statement should indicate whether a foreign dividend is may have access to, but if you are uncertain, ask the company's investor relations department or consult a tax professional.

Special cases: preferred stock and special dividends

Preferred stock dividends can be may have access to if the stock meets the same holding requirements as common stock. However, preferred stock often has different ex-dividend dates and payment schedules, so verify the holding period for each payment. Some preferred stocks pay monthly, which means you need to hold through multiple ex-dividend dates to keep all payments may have access to.

Special dividends — one-time payments that are not part of the regular schedule — are treated the same way as regular dividends for qualification purposes. They must meet the holding requirement and come from a may have access to company. A special dividend does not reset the clock on your holding period for future regular dividends.

Frequently Asked Questions

Can I lose may have access to dividend status if I sell the stock after the ex-dividend date?

Yes. You must hold the stock for at least 60 days during the 121-day window centered on the ex-dividend date. If you sell before that 60-day holding period is complete, the dividend becomes ordinary income even though you received the payment. The ex-dividend date is only the starting point; the holding requirement extends well after the payment date.

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

No. You report may have access to dividends on the same Schedule B as ordinary dividends, but tax software and the IRS know to apply the lower capital gains rate to Box 1b amounts from your 1099-DIV. If you are filing by hand, may have access to dividends go on line 5b of Form 1040, and ordinary dividends go on line 5a. The forms handle the rate difference automatically.

What if my brokerage reports a dividend as may have access to but I do not think I held it long enough?

Contact your brokerage immediately and ask them to review the holding period. If they made an error, request a corrected 1099-DIV before you file your return. If you have already filed and claimed the dividend as may have access to, you can file an amended return (Form 1040-X) to correct it. It is better to fix it yourself than to wait for the IRS to catch the mistake.

Are dividends from index funds like VOO or VTI may have access to?

Usually yes, because these funds hold U.S. stocks and pass through may have access to dividends to you. However, the fund must have held each underlying stock long enough for the dividend to may have access to. Most large index funds have low turnover and hold stocks for years, so nearly all their dividends are may have access to. Check your year-end statement to see the breakdown.

Do I pay tax on may have access to dividends even if I reinvest them?

Yes. Reinvesting dividends does not change their tax status. Whether you take the cash or use it to buy more shares, you owe tax on the dividend in the year you receive it. The tax is based on the dividend amount, not on whether you spent the money or reinvested it.