The core difference: tax rate and holding period
may have access to dividends are taxed at the long-term capital gains rate, which is lower than your ordinary income tax rate. Ordinary dividends are taxed as regular income at your full tax bracket rate. The difference in what you owe can be substantial — a may have access to dividend might be taxed at 15 percent while the same dollar amount in ordinary dividends is taxed at 24, 32, or higher, depending on your income.
The IRS does not decide which dividends are may have access to based on how much money you made or what you do for work. Instead, it depends on two things: the type of company paying the dividend and how long you held the stock before the payment date.
Most dividends from U.S. companies and certain foreign companies are may have access to if you meet the holding period requirement. Dividends from real estate investment trusts (REITs), master limited partnerships, and certain other investments are almost always ordinary, no matter how long you hold them.
Key Takeaways
- may have access to dividends use the long-term capital gains tax rate (0, 15, or 20 percent for most people), while ordinary dividends use your regular income tax bracket rate.
- You must hold the stock for at least 60 days during a 121-day window around the dividend payment date for the dividend to count as may have access to.
- Dividends from REITs, master limited partnerships, and certain mutual funds are taxed as ordinary income even if you hold the stock for years.
- Your brokerage statement will separate may have access to and ordinary dividends, so you do not have to calculate this yourself when filing taxes.
Holding period requirements for may have access to status
Simply owning a stock when it pays a dividend is not enough. You must have owned the stock for at least 60 days during a specific 121-day window. The window starts 60 days before the ex-dividend date — the date by which you must own the stock to receive the payment.
For example, if a stock's ex-dividend date is June 15, the 121-day window runs from April 16 to August 14. You must hold the stock for at least 60 of those 121 days. If you bought on June 1 and sold on July 15, you held it for only 44 days within the window, so the dividend is ordinary, not may have access to.
This rule exists to prevent people from buying a stock just before the dividend payment and selling immediately after. If you sell before meeting the 60-day requirement, the dividend reverts to ordinary status even if you held it long enough after the payment date.
Which companies and investments pay may have access to dividends
Dividends from most U.S. corporations are may have access to if you meet the holding period. This includes large companies, small companies, and mid-cap stocks. The company does not have to be profitable or pay dividends every quarter — the rule applies to any dividend from a regular corporation.
Certain foreign companies also pay may have access to dividends, but only if the country has a tax treaty with the United States and the stock trades on a U.S. exchange or is registered with the SEC. Dividends from foreign stocks that do not meet these conditions are taxed as ordinary income.
Dividends from REITs, master limited partnerships (MLPs), and certain mutual funds are almost always ordinary income. Some mutual funds also pay short-term capital gains distributions, which are taxed as ordinary income even though they come from the fund's investment gains. Your fund's annual statement will specify which distributions are may have access to and which are not.
Tax rates for may have access to versus ordinary dividends
may have access to dividends are taxed at the long-term capital gains rate. For 2024, that rate is 0 percent, 15 percent, or 20 percent depending on your total income and filing status. The income thresholds change each year, but the structure remains the same.
Ordinary dividends are taxed at your marginal income tax rate — the same rate you pay on wages, interest, and other ordinary income. For 2024, that ranges from 10 percent to 37 percent depending on your tax bracket.
The difference matters most for people in the higher tax brackets. Someone in the 37 percent bracket pays 37 cents in tax on every dollar of ordinary dividends but only 20 cents on may have access to dividends — a savings of 17 cents per dollar. For someone in the 10 percent bracket, the difference is smaller but still present: 10 cents per dollar of ordinary dividends versus 0 cents for may have access to dividends.
How to find this information on your tax documents
Your brokerage sends a 1099-DIV form each January showing all dividends you received the previous year. The form separates may have access to dividends from ordinary dividends in different boxes. Box 1b shows may have access to dividends; Box 1a shows ordinary dividends. You do not calculate this yourself — the brokerage determines the status based on the holding period and the paying company.
If you use tax software, it will pull this information from your 1099-DIV and apply the correct tax rate automatically. If you file by hand or with a tax professional, they will use the same boxes to determine your tax liability.
Some brokerages also show this breakdown in your year-end statement or online account summary. If you are unsure whether a specific dividend was may have access to, contact your brokerage — they have the ex-dividend date and your purchase and sale dates on file.
What happens if you do not meet the holding period
If you sell the stock before holding it for 60 days within the 121-day window, the dividend is reclassified as ordinary income. This can happen even if you held the stock for months or years, as long as the sale occurred too soon relative to the ex-dividend date.
Some investors use this rule intentionally. If you expect a stock to drop after paying a dividend, you might sell before meeting the 60-day requirement and accept the higher tax rate in exchange for avoiding the price decline. This is a trade-off between tax cost and investment risk, not a mistake.
The brokerage will flag this on your 1099-DIV. If you received a dividend but sold too quickly, that dividend will appear in Box 1a (ordinary) rather than Box 1b (may have access to). There is no penalty — the tax rate simply adjusts to your ordinary income rate.
Frequently Asked Questions
Do I have to hold a stock for a full year to get may have access to dividend treatment?
No. You need to hold it for at least 60 days during a 121-day window around the ex-dividend date. You can hold it for one month and still may have access to, as long as the 60 days fall within that window. The one-year rule applies to long-term capital gains when you sell the stock itself, not to dividend payments.
Are dividend reinvestment plans (DRIPs) treated differently?
No. If you reinvest dividends back into the stock through a DRIP, the dividend itself is still classified as may have access to or ordinary based on your holding period. The reinvestment does not change the tax treatment of the original dividend payment.
What if I inherit stock that pays dividends?
Dividends paid after you inherit the stock are treated as ordinary income, regardless of how long the previous owner held it. Your holding period starts from the date of inheritance, not from when the original owner bought the stock.
Can I lose may have access to status if I sell covered calls against my stock?
Yes. If you sell a covered call and it is exercised before you meet the 60-day holding requirement, the stock is considered sold and the dividend reverts to ordinary status. This is one reason some investors avoid covered calls on dividend-paying stocks during the holding period window.
Do mutual fund dividends get the same treatment as individual stock dividends?
Mutual funds report may have access to and ordinary dividends separately on your 1099-DIV. Some fund distributions are may have access to, some are ordinary, and some may be short-term capital gains (always ordinary). The fund's prospectus and year-end statement will show the breakdown for that specific fund.