Dividend tax rates depend on how long you held the stock and your income level
The tax you pay on dividends falls into two categories: may have access to dividends and non-may have access to dividends. may have access to dividends are taxed at the long-term capital gains rate, which is lower than ordinary income tax. Non-may have access to dividends are taxed as ordinary income at your regular tax bracket rate.
To may have access to for the lower rate, you must have held the stock for more than 60 days during the 121-day period centered on the ex-dividend date. If you don't meet this holding period, the dividend counts as non-may have access to income no matter what.
The actual tax rate you pay depends on your total taxable income for the year, not just the dividend amount. This is why two people receiving the same dividend payment may owe different taxes.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income bracket, while non-may have access to dividends are taxed at your ordinary income tax rate (10% to 37%).
- You must hold a stock for more than 60 days around the ex-dividend date to receive the may have access to dividend rate; otherwise it is taxed as ordinary income.
- Your total taxable income for the year determines which tax bracket applies, not the dividend amount alone.
- The IRS requires your brokerage to report whether each dividend is may have access to or non-may have access to on Form 1099-DIV, which you receive by January 31.
may have access to dividend tax rates by income level
If your dividend meets the holding period requirement, the tax rate depends on your filing status and total taxable income. For 2024, the may have access to dividend rates are 0%, 15%, or 20%.
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $47,025 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $47,025 to $291,875 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $291,875 | Over $551,350 |
These income thresholds are adjusted each year for inflation. The amounts shown are for the 2024 tax year, which you report on your 2024 tax return filed in 2025. Check the IRS website or your tax software for current-year thresholds.
Non-may have access to dividend tax rates
Non-may have access to dividends are taxed as ordinary income. This means they are added to your wages, interest, and other income, and the total determines your tax bracket. The ordinary income tax rates for 2024 range from 10% to 37% depending on your filing status and total income.
Non-may have access to dividends are more common than many people realize. They occur when you hold a stock for 60 days or fewer around the ex-dividend date, or when the dividend comes from a real estate investment trust (REIT), a mutual fund that invests in bonds, or certain other investments that do not may have access to for preferential rates.
Because non-may have access to dividends push you into a higher tax bracket when combined with other income, receiving a large non-may have access to dividend late in the year can increase your overall tax bill significantly.
How the holding period works
The IRS requires you to hold a stock for more than 60 days during a 121-day window to receive the may have access to dividend rate. The window starts 60 days before the ex-dividend date and ends 60 days after it.
The ex-dividend date is the date set by the stock exchange. If you buy the stock on or after the ex-dividend date, you do not receive that dividend at all. If you sell the stock before the ex-dividend date, you do not receive it either. The ex-dividend date is usually one business day before the record date, which is the date the company checks its shareholder list.
If you sell the stock within 60 days of receiving the dividend, the holding period requirement is not met, and the dividend is taxed as non-may have access to income. This rule prevents investors from holding a stock just long enough to collect a dividend and then selling it immediately.
What Form 1099-DIV tells you
Your brokerage sends you a Form 1099-DIV by January 31 for each year you received dividends. This form breaks down your dividends into categories: ordinary dividends, may have access to dividends, capital gain distributions, and others.
Box 1a on the form shows ordinary dividends (which may be may have access to or non-may have access to). Box 1b shows may have access to dividends. If a dividend appears in Box 1b, it qualifies for the lower long-term capital gains rate. If it appears only in Box 1a, it is taxed as ordinary income.
You report the amounts from Form 1099-DIV on Schedule B (if you have more than $1,500 in dividends) or directly on your Form 1040. Your tax software usually imports this information automatically if you provide your brokerage account details.
State and local taxes on dividends
Federal tax is only part of the picture. Most states also tax dividend income, though the rate and treatment vary widely. Some states tax all dividends as ordinary income. Others offer a preferential rate for may have access to dividends. A few states do not tax dividends at all.
New Hampshire and Tennessee tax only dividend and interest income, not wages. Most other states tax dividends as part of your overall income at the state tax rate. Check your state's tax agency website or ask a tax preparer about your state's rules.
Local taxes on dividends are less common but do exist in some cities and counties. If you live in a high-tax area, ask whether your municipality taxes investment income.
How to report dividends on your tax return
If your total dividends for the year are $1,500 or less, you report them directly on Form 1040, line 5b. If you have more than $1,500 in dividends or interest combined, you must complete Schedule B and attach it to your return.
On Schedule B, you list each dividend-paying investment separately if you received more than $1,500 total. You then transfer the totals to Form 1040. Your tax software handles this calculation automatically.
Make sure the amounts on your Form 1099-DIV match what your brokerage shows in your account. If there is a discrepancy, contact your brokerage to request a corrected form (Form 1099-DIV with "CORRECTED" marked on it) before you file your return.
Frequently Asked Questions
Do I owe taxes on dividends I reinvest?
Yes. Whether you take the dividend as cash or reinvest it in more shares, you owe tax on the full amount in the year you receive it. Reinvestment does not defer or eliminate the tax. The cost basis of the new shares you buy with the reinvested dividend is the amount of the dividend itself.
What if I sold the stock before the ex-dividend date?
You do not receive the dividend and do not owe tax on it. The person who owned the stock on the ex-dividend date receives the dividend and pays the tax. This is why the stock price typically drops by the dividend amount on the ex-dividend date.
Are dividends from my 401(k) or IRA taxed?
No, not while the money is in the account. Dividends inside a 401(k), traditional IRA, or Roth IRA grow tax-free. You pay tax only when you withdraw the money (or never, in the case of a Roth IRA if you follow the rules). This is one reason retirement accounts are valuable for dividend-paying investments.
Can I deduct investment losses to offset dividend taxes?
Yes, but only up to a limit. You can deduct capital losses against capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income (including dividends). Any remaining losses carry forward to future years.
What if my brokerage reported the wrong tax category for a dividend?
Contact your brokerage and ask for a corrected Form 1099-DIV. If the error is small and you catch it after filing, you can file an amended return (Form 1040-X). If the brokerage made the error, they are responsible for correcting it, not you.