Dividend tax rates depend on how long you held the stock and your total income for the year
The federal tax rate on dividends is not one number. The IRS taxes most dividends at either 0%, 15%, or 20%, depending on your income bracket and whether the dividends are may have access to or nonqualified. A may have access to dividend comes from a stock you held for more than 60 days during a specific window around the payment date. A nonqualified dividend is taxed as ordinary income at your regular tax rate, which can be as high as 37% at the top bracket.
You also pay state income tax on dividends in most states, and that rate varies widely — from 0% in states like Texas and Florida to over 13% in California. Some states tax dividends differently than wages, and a few do not tax them at all. Your total tax bill on dividends is the sum of federal tax plus your state tax.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income; nonqualified dividends are taxed as ordinary income at rates up to 37%.
- To may have access to for the lower rate, you must have held the stock for more than 60 days before or after the dividend payment date.
- State income tax on dividends ranges from 0% to over 13% and is added on top of federal tax.
- Your broker will report dividend income to the IRS on Form 1099-DIV, and you report it on your tax return.
The difference between may have access to and nonqualified dividends
A may have access to dividend meets two conditions: the company paying it is a U.S. corporation or a foreign corporation whose stock trades on a U.S. exchange, and you held the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the cutoff — if you buy the stock on or after that date, the dividend is not may have access to, even if you hold it for years afterward.
A nonqualified dividend fails one of those tests. You might have held the stock for only 30 days, or it might be from a real estate investment trust (REIT), a master limited partnership (MLP), or a foreign company that does not meet the criteria. Nonqualified dividends are taxed as ordinary income at your marginal tax rate — the same rate you pay on wages or interest.
Your broker reports both types separately on Form 1099-DIV, which you receive by January 31 of the following year. The form tells you which dividends are may have access to and which are not.
Federal tax brackets for may have access to dividends in 2024
may have access to dividends fall into three federal tax brackets. The exact income thresholds change each year, but the structure stays the same. For 2024, here is how it works:
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $62,975 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $62,975 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
These thresholds are based on your taxable income, which includes wages, interest, capital gains, and dividends combined. If you are married filing jointly and earn $100,000 in wages plus $20,000 in may have access to dividends, your total taxable income is $120,000, and your may have access to dividends are taxed at 0% because you fall in the first bracket.
The income limits change annually to account for inflation. The IRS publishes updated brackets each year in late 2023 for the following tax year.
State taxes on dividends
State income tax on dividends varies significantly. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax dividend income at all. New Hampshire taxes only interest and dividends at 5%, not wages. Most other states tax dividends as ordinary income at their regular state tax rate.
A few states offer preferential rates for dividends. Illinois taxes only investment income (including dividends) at 4.95%, while wages are taxed at the same rate. Vermont and some other states have separate brackets for capital gains and dividends that differ from wage income brackets.
You pay state tax where you live on December 31 of the tax year, regardless of where the company is located or where you opened your brokerage account. If you moved during the year, you may owe tax to two states, though most states offer a credit to avoid double taxation.
How to report dividends on your tax return
Your broker sends you Form 1099-DIV by January 31, which lists all dividends paid during the year. You receive a copy and the IRS receives a copy. You report this income on Schedule B (Interest and Ordinary Dividends) or Schedule 1 (Additional Income), depending on the total amount and type.
If you have more than $1,500 in ordinary dividends or any may have access to dividends, you must use Schedule B. may have access to dividends go on a separate line from nonqualified dividends. You then transfer the totals to Form 1040, your main tax return.
If you own dividend-paying stocks in a retirement account like a 401(k) or IRA, you do not report those dividends on your tax return at all — the account is tax-deferred or tax-free, depending on the account type. You only pay tax when you withdraw money from the account.
Net Investment Income Tax and high earners
If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), you may owe an additional 3.8% Net Investment Income Tax on your dividends. This tax applies to the lesser of your net investment income or the amount by which your income exceeds the threshold.
For example, if you are single, earn $220,000 in wages, and receive $10,000 in may have access to dividends, your modified adjusted gross income is $230,000. The excess over $200,000 is $30,000. Your net investment income is $10,000. You owe 3.8% tax on the $10,000, which is $380.
This tax is separate from income tax and is reported on Form 8960. Your tax software or preparer will calculate it automatically if your income is high enough.
Frequently Asked Questions
Do I pay tax on dividends reinvested through a dividend reinvestment plan?
Yes. Even if you automatically reinvest dividends to buy more shares, you owe tax on the full dividend amount in the year it is paid. The reinvestment does not defer or eliminate the tax. Your broker reports the dividend on Form 1099-DIV regardless of whether you took the cash or reinvested it.
What if I sold the stock before the ex-dividend date but still received the dividend?
If you sold before the ex-dividend date, you should not receive the dividend at all — the new owner receives it. If you did receive it by mistake, contact your broker immediately. If you sold after the ex-dividend date but before the payment date, you keep the dividend and owe tax on it.
Are dividends from foreign stocks taxed differently?
Foreign dividends are taxed at the same federal rates as U.S. dividends if they meet the may have access to dividend rules. However, the foreign country may also withhold tax before the dividend reaches you. You can claim a foreign tax credit on your U.S. return to avoid double taxation. Your broker will report the withholding on Form 1099-DIV.
Do I owe tax on stock dividends or only cash dividends?
Stock dividends — where the company issues new shares instead of cash — are generally not taxed when received. You only pay tax when you sell those shares. However, some stock dividends are taxable at the time of receipt. Your broker and Form 1099-DIV will specify which type you received.