Most states tax may have access to dividends at ordinary income rates, not the lower federal rate

The federal government taxes may have access to dividends at 0%, 15%, or 20% depending on your income bracket — rates much lower than ordinary income. Most states do not follow this federal structure. Instead, they tax may have access to dividends as regular income at whatever rate applies to wages and other earnings in your state. A few states have carved out exceptions, but they are the minority.

This means a may have access to dividend that faces 15% federal tax might face 5% to 10% state tax on top of it, depending on where you live. The state tax is separate from and in addition to what you owe the IRS. Your total tax bill on may have access to dividends is the federal rate plus your state rate combined.

Key Takeaways

  • Most states tax may have access to dividends at the same rate as wages and salary, not at the preferential federal rates of 0%, 15%, or 20%.
  • Nine states have no income tax at all, so residents pay zero state tax on may have access to dividends regardless of federal tax owed.
  • A handful of states — including Illinois and Mississippi — tax may have access to dividends at a lower rate than ordinary income, though still higher than the federal rate.
  • You report may have access to dividends on both your federal return (Form 1040) and your state return, and the state amount depends entirely on your state's tax code.

States with no income tax

Nine states do not tax income at all, which means residents owe zero state tax on may have access to dividends. These states are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire technically has a tax on dividends and interest income, but it phases out and will be eliminated by 2024, so check current rules if you live there.

If you live in one of these states, you still owe federal tax on may have access to dividends at the 0%, 15%, or 20% rate. The state portion of your tax bill is simply zero. This is one reason some investors prioritize residency in these states, though moving for tax purposes involves many other considerations beyond dividend taxation.

States that tax may have access to dividends at a reduced rate

A small number of states have created a lower tax rate for may have access to dividends than they apply to ordinary income. Illinois taxes may have access to dividends at 3.23% while ordinary income faces 4.95%. Mississippi taxes may have access to dividends at 3% while ordinary income faces up to 5%. These rates are still higher than the federal preferential rates, but they represent a middle ground between no tax and full ordinary-income taxation.

These reduced-rate states are exceptions. Before assuming your state offers a break on may have access to dividends, check your state's tax code or contact your state revenue department directly. Tax law changes, and what applied last year may not apply this year. Your state's Department of Revenue website typically has a section on dividend taxation that spells out the exact rate and any income thresholds that apply.

States that tax may have access to dividends as ordinary income

The majority of states tax may have access to dividends at the same rate they tax wages, salary, and other ordinary income. This means if your state's top income tax rate is 8.82% (as in California), may have access to dividends face that same 8.82% rate at the state level. The federal preferential rate does not carry over to state taxation.

These states include California, New York, Massachusetts, Connecticut, Maryland, and many others. The exact rate you pay depends on your income bracket within your state — most states use progressive tax brackets, so higher earners pay a higher percentage. You will see the state tax rate listed on your state income tax return instructions or on the state revenue department website.

How to find your state's rule

Your state's Department of Revenue website is the authoritative source. Search for "may have access to dividends" or "dividend taxation" on that site, or look for the instructions that come with your state income tax form. Many states publish a specific section on how dividends are taxed.

If the website is unclear, call the state revenue department's taxpayer assistance line. They can tell you in minutes whether your state taxes may have access to dividends at a reduced rate, at ordinary income rates, or not at all. Have your state and income level ready when you call, because some states use different rates depending on how much you earn.

Reporting may have access to dividends on your state return

You report may have access to dividends on your state income tax return in the same section where you report ordinary dividends and interest. Most state forms mirror the federal form structure — you will see a line for dividend income, and the state will apply its tax rate to that amount. The dividends you received are the same number on both your federal and state returns; only the tax rate applied to them differs.

Your brokerage or mutual fund company sends you a Form 1099-DIV that breaks out may have access to dividends separately from ordinary dividends. Use the may have access to dividend amount from that form when you fill out your state return. Some states ask you to report may have access to and ordinary dividends separately; others combine them. Check your state's form instructions to see which applies to you.

What happens if you move to a different state mid-year

If you moved during the year, you may owe tax to two states on the same dividends. The state you lived in when you received the dividends typically has the right to tax them. You report the income to both states, but one state usually gives you a credit for taxes paid to the other to avoid double taxation. The mechanics vary by state, so contact both your old and new state revenue departments if this applies to you.

Some states have reciprocal agreements that simplify this process. Others require you to file a part-year resident return in each state. This is complex enough that it often makes sense to consult a tax professional if you moved mid-year and received significant dividend income.

Frequently Asked Questions

Do I pay state tax on may have access to dividends if I live in a no-income-tax state?

No. If you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, you owe zero state income tax on may have access to dividends. You still owe federal tax at the preferential rate, but the state portion is zero.

Can I deduct state taxes paid on may have access to dividends from my federal return?

You can deduct state income taxes paid, but only if you itemize deductions on your federal return instead of taking the standard deduction. The deduction is capped at $10,000 per year total for all state and local taxes combined. Most taxpayers take the standard deduction, so this deduction does not apply to them.

If my state taxes may have access to dividends at ordinary rates, do I still get the federal preferential rate?

Yes. Federal and state taxes are separate. You pay the federal preferential rate (0%, 15%, or 20%) to the IRS and your state's ordinary income rate to your state. Both apply to the same dividend income.

What if I do not know my state's dividend tax rate?

Contact your state Department of Revenue directly or visit their website and search for "dividend taxation" or "may have access to dividends." The instructions that come with your state income tax form also explain how dividends are taxed in your state.

Do I report may have access to dividends differently on my state return than on my federal return?

You report the same dividend amount on both returns. The difference is the tax rate applied to it. Use the may have access to dividend figure from your Form 1099-DIV on both your federal and state returns; the state will apply its own tax rate to that amount.