Most dividends are taxed at ordinary income rates, but some may have access to for lower rates if you hold the stock long enough

Dividend income is taxed in one of two ways depending on the type of dividend and how long you owned the stock. Ordinary dividends — the most common kind — are taxed at your regular income tax rate, the same rate applied to wages, interest, and other ordinary income. may have access to dividends meet specific holding-period rules and are taxed at lower capital gains rates instead. The difference can be substantial: ordinary dividend rates run from 10% to 37% depending on your tax bracket, while may have access to dividend rates max out at 20%.

Your brokerage or mutual fund company reports which dividends are ordinary and which are may have access to on Form 1099-DIV, sent to you and the IRS each January. You do not have to calculate this yourself — the form tells you the amount in each category. But you do need to understand the rules, because holding a stock for too short a time can push a may have access to dividend back into the ordinary category, and that affects what you owe.

Key Takeaways

  • Ordinary dividends are taxed at your full income tax rate (10% to 37%), while may have access to dividends are taxed at lower capital gains rates (0%, 15%, or 20%).
  • A dividend qualifies for the lower rate only if you held the stock for more than 60 days during the 121-day window centered on the ex-dividend date.
  • Your brokerage reports ordinary and may have access to dividends separately on Form 1099-DIV; you enter each amount on your tax return in the correct place.
  • Dividends from money market funds, bonds, and preferred stock are almost always ordinary, not may have access to.
  • If you sell a stock before meeting the holding period, any dividend you received on it becomes ordinary income even if the brokerage initially reported it as may have access to.

What counts as an ordinary dividend

An ordinary dividend is any dividend that does not meet the IRS rules for may have access to status. This includes dividends from most bonds, money market funds, real estate investment trusts (REITs), and master limited partnerships (MLPs). It also includes dividends from preferred stock in most cases, and dividends paid by foreign corporations that do not meet specific tax treaty requirements.

Ordinary dividends are also the default for common stock dividends when the holding-period rule is not satisfied. Even if a company pays a dividend on common stock, if you did not own the shares long enough before and after the ex-dividend date, the IRS treats that payment as ordinary income. This is one of the most common mistakes: a shareholder buys a stock, collects a dividend, and assumes it is may have access to because it came from a regular company — but the holding period was too short.

What qualifies a dividend for the lower tax rate

A dividend from common or preferred stock qualifies for the lower capital gains rate only if you held the stock for more than 60 days during a specific 121-day window. That window starts 60 days before the ex-dividend date and ends 60 days after it. The ex-dividend date is the cutoff set by the company: if you own the stock on that date, you receive the dividend; if you sell before it, you do not.

The 60-day holding period means you cannot buy a stock two days before the ex-dividend date, collect the dividend, and sell it the next day and have that dividend taxed as may have access to. You have to hold it long enough before and after to show you had a genuine investment stake, not just a quick trade to capture the payout. If you sell too soon, the IRS reclassifies the dividend as ordinary, even if your brokerage initially reported it as may have access to on your 1099-DIV.

The holding period also does not count days when you have substantially reduced your risk — for example, if you own the stock but also own a put option (the right to sell at a set price) or have sold a call option (giving someone else the right to buy). These hedging positions tell the IRS you are not truly holding the stock at risk, so those days do not count toward the 60.

How your brokerage reports dividends to you and the IRS

In January, your brokerage sends you Form 1099-DIV showing all dividends paid during the previous year. The form has separate boxes for ordinary dividends (Box 1a) and may have access to dividends (Box 1b). Your brokerage makes the initial information based on the company's designation and your holding period as of the ex-dividend date. But this is not final — if you later sell the stock and do not meet the 60-day rule, you are responsible for correcting it on your tax return.

You report ordinary dividends on Schedule B (Interest and Ordinary Dividends) and then transfer the total to your Form 1040. may have access to dividends go on Schedule D (Capital Gains and Losses) and are taxed at the preferential rates. If you receive a large number of dividends, you may use Schedule 1 to organize them, but the reporting structure is the same: ordinary in one place, may have access to in another.

The tax rate difference between ordinary and may have access to dividends

Ordinary dividends are taxed at your marginal tax rate — the rate that applies to your last dollar of income. For the 2024 tax year, that rate ranges from 10% to 37% depending on your filing status and total income. A single filer in the 24% bracket pays 24% on ordinary dividends; a married couple filing jointly in the 32% bracket pays 32%.

may have access to dividends are taxed at the long-term capital gains rates, which are lower: 0%, 15%, or 20%. The rate you pay depends on your income level and filing status, not on how long you held the stock. A single filer with income up to $47,025 (2024) pays 0% on may have access to dividends. Income from $47,025 to $518,900 is taxed at 15%. Income above that is taxed at 20%. These thresholds adjust each year for inflation.

The practical effect: if you are in the 24% ordinary income bracket and receive $1,000 in may have access to dividends instead of ordinary dividends, you save $90 in federal tax (the difference between 24% and 15%). If you are in the 37% bracket, the savings is even larger — $170 per $1,000 in may have access to dividends.

Dividends that are never may have access to

Some dividends cannot may have access to for the lower rate no matter how long you hold the investment. Dividends from REITs are always ordinary income. Dividends from money market funds are ordinary. Dividends from most bonds and bond funds are ordinary. Dividends from MLPs are ordinary. These are structural — the IRS does not allow these types of investments to produce may have access to dividends.

Dividends from foreign corporations are also usually ordinary unless the foreign country has a tax treaty with the United States and the corporation meets specific requirements. Most large foreign companies do may have access to, but smaller ones or those in countries without a treaty do not. Your brokerage will report this correctly on Form 1099-DIV, but it is worth checking if you own foreign stocks and want to understand your tax bill.

What happens if you sell the stock before the holding period ends

If you receive a dividend reported as may have access to on your 1099-DIV but then sell the stock before you have held it for 60 days in the required window, you must report the dividend as ordinary income on your tax return. The brokerage does not know you sold it; they only know the holding period as of the ex-dividend date. You are responsible for catching this and correcting it.

This is one of the most overlooked tax issues. A shareholder buys a stock, receives a dividend marked "may have access to" on the 1099-DIV, and assumes the tax is settled. But if they sold the stock 30 days later, the dividend should have been ordinary. The IRS may not catch it immediately, but if audited, you will owe the difference in tax plus interest and penalties. To avoid this, track your holding periods carefully if you trade frequently, and do not assume the 1099-DIV is the final word on how to report the dividend.

Frequently Asked Questions

Can I get the may have access to dividend rate if I own the stock through a retirement account?

No. Dividends inside a traditional IRA, Roth IRA, 401(k), or other tax-deferred account are not taxed at all while the money stays in the account. When you withdraw money later, it is taxed as ordinary income (in a traditional account) or not taxed (in a Roth). The may have access to dividend rate does not apply because the account itself is tax-sheltered.

What if I inherited stock and received a dividend shortly after?

Inherited stock gets a new holding period that starts on the date of death, not the date the original owner bought it. So if you inherit stock and the ex-dividend date is within 60 days, you may not meet the holding period for that dividend to be may have access to. Check the dates carefully before assuming inherited dividends are may have access to.

Do I have to report dividends under $10?

Yes. The IRS requires you to report all dividend income, regardless of amount. Your brokerage may not send a 1099-DIV for very small amounts, but you are still required to report it if you received it. Keep your own records of all dividends paid to you during the year.

If I own a dividend-paying mutual fund, are the dividends may have access to?

It depends on the fund. If the fund holds mostly stocks and passes through may have access to dividends to you, those are reported as may have access to on your 1099-DIV. If the fund holds bonds, REITs, or other ordinary-dividend-only investments, the dividends are ordinary. The fund company reports this breakdown on the 1099-DIV, so you do not have to figure it out yourself.

Can I deduct losses to offset dividend income?

Yes, but only capital losses offset capital gains (including may have access to dividends). Ordinary losses can offset ordinary income (including ordinary dividends). If you have a net capital loss in a year, you can use up to $3,000 to offset ordinary income, with the rest carried forward to future years. Consult a tax professional if you have significant losses and gains to sort out.