The core difference: how the IRS taxes them

Ordinary dividends are taxed as regular income at your marginal tax rate — the same rate you pay on wages or salary. may have access to dividends are taxed at a lower rate: either 0%, 15%, or 20%, depending on your total income for the year. That lower rate is the only difference that matters to your tax bill.

The IRS does not tax the dividend payment itself differently. Your brokerage or mutual fund company reports both types to you and to the IRS on the same form (Form 1099-DIV). The difference is purely in how you calculate what you owe when you file your return.

Most dividends you receive are ordinary dividends. may have access to dividends are a subset — they have to meet specific rules about how long you held the stock and what kind of company paid them. If a dividend does not meet those rules, it is ordinary, even if it came from a blue-chip stock.

Key Takeaways

  • Ordinary dividends are taxed at your regular income tax rate, which can be as high as 37%; may have access to dividends are taxed at 0%, 15%, or 20% depending on your income level.
  • To may have access to for the lower rate, you must have held the stock for at least 60 days during the 121-day window around the ex-dividend date.
  • Dividends from real estate investment trusts (REITs), master limited partnerships, and some preferred stocks are always ordinary, never may have access to.
  • Your brokerage reports which dividends are may have access to on Form 1099-DIV; if it does not specify, treat them as ordinary.

What makes a dividend "may have access to"

A dividend qualifies for the lower tax rate only if two conditions are both true: you held the stock long enough, and the company that paid it meets IRS rules.

For the holding period, you must own the stock for at least 60 days within a 121-day window. That window starts 60 days before the ex-dividend date (the date by which you must own the stock to receive the dividend) and ends 60 days after it. If you bought the stock one week before the ex-dividend date and sold it one week after, you do not meet the 60-day rule, even though you owned it during the dividend payment.

For the company, it must be a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange. Dividends from foreign stocks that do not trade here, or from certain partnerships and trusts, are always ordinary.

Which dividends are always ordinary

Some investments pay dividends that never may have access to, no matter how long you hold them. Real estate investment trusts (REITs) always pay ordinary dividends. So do master limited partnerships (MLPs) and most preferred stocks issued by banks and insurance companies.

Dividends from money market funds, bond funds, and other fixed-income investments are also ordinary. If you receive a dividend from a mutual fund or exchange-traded fund, check the fund's prospectus or your 1099-DIV to see whether it reports any may have access to dividends — many funds hold a mix of stocks and bonds, so some distributions may be ordinary and some may have access to.

If you are unsure whether a dividend qualifies, your brokerage statement or the 1099-DIV your company sends in January will tell you. The form separates may have access to dividends from ordinary ones. If a dividend is not listed in the may have access to section, it is ordinary.

How the tax rate works in practice

The may have access to dividend rate depends on your total taxable income for the year, not on the dividend amount alone. The three rates — 0%, 15%, and 20% — apply to different income brackets, and those brackets change each year.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married filers filing jointly up to $94,050. The 15% rate applies to income above those thresholds 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.

This means your may have access to dividends may be taxed at different rates depending on your other income. If you are near a bracket boundary, a large dividend could push you into a higher rate. A tax professional can help you model this if you receive substantial dividends.

Ordinary dividends and your tax bracket

Ordinary dividends are added to your other income and taxed at your marginal rate. If you are in the 24% tax bracket, ordinary dividends are taxed at 24%. If you are in the 32% bracket, they are taxed at 32%. This is straightforward but costly compared to the may have access to rate.

Because ordinary dividends use your regular tax brackets, they can push you into a higher bracket if your total income is high. A large ordinary dividend near the end of the year could move you from the 22% bracket to the 24% bracket, meaning the last portion of that dividend is taxed at 24%.

What your brokerage reports and when

By January 31 each year, your brokerage or fund company sends you a Form 1099-DIV showing all dividends paid in the prior year. The form has separate boxes for ordinary dividends and may have access to dividends. Use the numbers in those boxes when you file your tax return.

If your brokerage incorrectly classifies a dividend, you can correct it when you file. Keep records of your purchase and sale dates for each holding. If you sold a stock before meeting the 60-day holding requirement, the dividend should have been reported as ordinary, and you can adjust your return if it was not.

Some brokerages allow you to see dividend classifications in your account online before the 1099-DIV arrives. Check your year-end tax documents section or contact your brokerage if you want to verify the classification before filing.

Frequently Asked Questions

Can I hold a stock for just over 60 days to get the may have access to rate?

Yes, but the 60 days must fall within the 121-day window around the ex-dividend date. If you buy the stock 70 days before the ex-dividend date and sell it 5 days after, you meet the requirement. If you buy it 5 days before and sell it 70 days after, you do not — the window is centered on the ex-dividend date, not on your purchase date.

What if I bought the stock, received the dividend, and then the stock price fell?

The dividend is still taxed the same way. The tax treatment depends only on the holding period and the company type, not on whether the stock gained or lost value. You may have a capital loss to report separately, but that does not change the dividend's tax rate.

Do I have to do anything special to claim the may have access to rate?

No. Your brokerage reports may have access to dividends separately on the 1099-DIV, and you enter them in the may have access to dividends line on your tax return. If your brokerage misclassifies a dividend, you can correct it yourself when you file, but you do not need to contact the IRS first.

Are stock dividends (when a company issues new shares instead of cash) treated differently?

Stock dividends are not taxed when you receive them, but when you eventually sell those shares, the holding period for the may have access to dividend rate starts from when you received the shares, not from when you bought the original stock. Consult a tax professional if you receive stock dividends and plan to sell soon.