Yes, you pay ordinary income tax on non-may have access to dividends

Non-may have access to dividends are taxed as regular income at your marginal tax rate — the same rate you pay on wages, interest, or self-employment income. If you're in the 22% tax bracket, non-may have access to dividends are taxed at 22%. If you're in the 37% bracket, they're taxed at 37%. This is the key difference from may have access to dividends, which get preferential rates of 0%, 15%, or 20% depending on your income level.

The IRS requires you to report non-may have access to dividends on your tax return. Your brokerage sends you a Form 1099-DIV each January showing how much you received in may have access to versus non-may have access to dividends. You then report the non-may have access to amount on Schedule B (Interest and Ordinary Dividends) and carry it to your Form 1040.

Because non-may have access to dividends are taxed as ordinary income rather than capital gains, the tax bite is often substantially larger. A $1,000 non-may have access to dividend costs you more in taxes than a $1,000 may have access to dividend in almost every situation.

Key Takeaways

  • Non-may have access to dividends are taxed at your full marginal income tax rate, which ranges from 10% to 37% depending on your income and filing status.
  • may have access to dividends receive preferential rates of 0%, 15%, or 20%, making them significantly cheaper to own from a tax perspective.
  • Your brokerage reports may have access to and non-may have access to dividends separately on Form 1099-DIV, so the IRS knows which is which.
  • The difference in tax cost between the two can be substantial — a non-may have access to dividend in the 37% bracket costs nearly twice as much in federal tax as a may have access to dividend.

Which dividends are taxed as non-may have access to

A dividend fails to meet the holding period requirement if you owned the stock for 60 days or fewer during the 121-day window centered on the ex-dividend date. This is the most common reason dividends end up non-may have access to. If you bought a stock two weeks before it paid a dividend and sold it two weeks after, that dividend is non-may have access to even though you held the stock through the payment date.

Dividends from real estate investment trusts (REITs) are almost always non-may have access to. So are dividends from most master limited partnerships (MLPs) and preferred stock issued by certain financial institutions. Dividends on shares held in tax-deferred accounts like IRAs or 401(k)s don't generate a tax bill at all, so the may have access to versus non-may have access to distinction doesn't matter there.

Some companies also pay special dividends or return-of-capital distributions that are classified as non-may have access to regardless of how long you held the stock. Your 1099-DIV will break these out separately.

How the tax brackets work with non-may have access to dividends

Non-may have access to dividends stack on top of your other income and are taxed at whatever bracket that combined income puts you in. If you earned $60,000 in wages and receive $5,000 in non-may have access to dividends, you're taxed on $65,000 total. The $5,000 is taxed at the marginal rate that applies to that portion of your income.

For 2024, the federal tax brackets for single filers range from 10% on the first $11,600 of income to 37% on income over $578,100. Married filing jointly brackets are roughly double. Non-may have access to dividends push you into higher brackets faster, which is why they're more expensive than may have access to dividends.

State and local income taxes also apply to non-may have access to dividends in most states. Some states tax may have access to and non-may have access to dividends at the same rate; others give may have access to dividends a break. A few states don't tax dividends at all, but most do.

The cost difference between may have access to and non-may have access to

A concrete example shows why this matters. Suppose you receive $1,000 in dividends and you're a single filer in the 24% federal tax bracket. A may have access to dividend costs you $150 in federal tax (15% rate). A non-may have access to dividend costs you $240 (24% rate). That's a $90 difference on a single $1,000 dividend — and the gap widens if you're in a higher bracket or live in a state with income tax.

If you're in the 37% federal bracket, a may have access to dividend costs $200 in federal tax while a non-may have access to dividend costs $370. Add state tax and the difference can exceed $100 on that same $1,000 dividend.

Over time, this compounds. Someone receiving $10,000 annually in non-may have access to dividends instead of may have access to dividends could pay $900 to $1,700 more in federal tax each year, depending on their bracket. Over a decade, that's $9,000 to $17,000 in extra tax on the same income.

How to avoid non-may have access to dividend status

The simplest approach is to hold dividend-paying stocks for at least 61 days within the 121-day window around the ex-dividend date. The 121-day window starts 60 days before the ex-dividend date and ends 60 days after it. If you buy a stock and hold it through that entire window, any dividend it pays during that time qualifies.

This matters most if you're actively trading. If you buy and hold dividend stocks for years, you'll almost always meet the holding period. If you're buying and selling frequently, or if you're using covered call strategies that involve selling shares shortly after buying them, you may trigger non-may have access to status without realizing it.

For REIT dividends and other inherently non-may have access to distributions, there's no holding period trick — they're taxed as ordinary income regardless. The only way to reduce the tax impact is to hold these investments in tax-deferred accounts like IRAs or 401(k)s, where the tax bill is deferred until you withdraw the money.

Reporting non-may have access to dividends on your tax return

Your brokerage reports all dividends on Form 1099-DIV, with may have access to and non-may have access to amounts listed separately in boxes 1a and 1b. You report the non-may have access to amount on Schedule B of your Form 1040, which flows to line 5b of the main form. The may have access to dividend amount goes on line 5a and is taxed at the preferential rates.

If you have dividends from multiple brokerages, you'll receive multiple 1099-DIVs. You add them all together and report the total on Schedule B. The IRS cross-checks your reported amounts against what the brokerages reported, so accuracy matters.

If you made a mistake on a prior year's return and reported non-may have access to dividends as may have access to (or vice versa), you can file an amended return using Form 1040-X. The statute of limitations is generally three years from the original filing date, though there are exceptions.

Non-may have access to dividends in tax-advantaged accounts

If you hold dividend-paying stocks inside a traditional IRA, Roth IRA, or 401(k), the may have access to versus non-may have access to distinction doesn't apply. The account itself is tax-deferred or tax-free, so dividends accumulate without generating a tax bill in the year they're paid.

In a traditional IRA or 401(k), you pay tax on the entire withdrawal amount when you take money out in retirement, regardless of whether the dividends were may have access to or non-may have access to while in the account. In a Roth IRA, may have access to withdrawals are tax-free entirely. This is one reason tax-deferred accounts are valuable for dividend investors — the tax status of the dividend becomes irrelevant.

If you're deciding where to hold dividend stocks, this is worth considering. Holding high-dividend stocks in a taxable account means paying tax on non-may have access to dividends at your full marginal rate. Holding them in an IRA or 401(k) defers or eliminates that tax entirely.

Frequently Asked Questions

Can I deduct losses on non-may have access to dividends?

No. Dividends are income; losses on the underlying stock are separate. If you buy a stock at $100, it pays a $5 non-may have access to dividend, and then drops to $80, you report the $5 as income and the $20 loss as a capital loss. You can't offset one against the other on your tax return.

What if my brokerage reports a dividend as may have access to but it shouldn't be?

Contact the brokerage and ask them to issue a corrected 1099-DIV. If you filed your return before receiving the correction, file an amended return. The IRS will eventually cross-check the brokerage's report against yours, so it's better to correct it proactively than to wait for a notice.

Do I owe tax on non-may have access to dividends if I reinvest them?

Yes. Reinvesting dividends doesn't change their tax status. Whether you take the cash or buy more shares with it, you owe tax on the full dividend amount in the year it's paid. The reinvestment just means you're using the after-tax money to buy more stock.

Are non-may have access to dividends subject to the net investment income tax?

Yes, if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). The net investment income tax adds 3.8% to dividends, capital gains, and other investment income above those thresholds. Non-may have access to dividends count as net investment income.

What happens to non-may have access to dividends if I die?

Your estate reports them on the final tax return for the year of death. Dividends paid after your death are income to your heirs or the estate, depending on how the assets are structured. There's no special tax break for non-may have access to dividends in an estate.