may have access to dividends are taxed at lower rates than ordinary income, but the exact rate depends on your total taxable income for the year

The federal tax rate on may have access to dividends is 0%, 15%, or 20%, depending on which tax bracket your income falls into. This is significantly lower than the ordinary income tax rates, which go as high as 37%. The IRS treats may have access to dividends more favorably because they come from investments you have held for a certain time, rather than from work or business activity.

Your dividend rate is determined by your total taxable income, not by the dividend amount alone. If your income is low enough to fall in the 10% or 12% ordinary income bracket, your may have access to dividends are taxed at 0%. If you are in the 22%, 24%, 32%, or 35% bracket, your may have access to dividends are taxed at 15%. If you are in the 37% bracket, your may have access to dividends are taxed at 20%.

The income thresholds that determine which rate applies change each year. For 2024, the 0% rate applies to single filers with taxable income up to $47,025, and married filing jointly filers up to $94,050. These numbers shift annually for inflation.

Key Takeaways

  • may have access to dividends are taxed at 0%, 15%, or 20% depending on your total taxable income, not the dividend amount itself.
  • The income thresholds that determine your rate change every year and are published by the IRS before tax season.
  • You must have held the stock for at least 60 days around the dividend payment date for the dividend to count as may have access to.
  • State and local taxes on dividends vary by location and are separate from the federal rates.

How the three tax rates work in practice

The 0% rate is the most valuable but applies only to lower-income households. For 2024, a single filer reaches the end of the 0% bracket at $47,025 of taxable income. A married couple filing jointly reaches it at $94,050. If your total taxable income (wages, business income, capital gains, and dividends combined) stays below these thresholds, all your may have access to dividends are taxed at 0%.

The 15% rate applies to most middle-income earners. For 2024, it covers single filers from $47,025 to $518,900 and married filing jointly from $94,050 to $583,750. This is where the majority of dividend income is taxed.

The 20% rate applies only to the highest earners. For 2024, it covers single filers above $518,900 and married filing jointly above $583,750. Additionally, a 3.8% net investment income tax applies to high-income households, which can push the effective rate on dividends to 23.8% for those subject to it.

Why the holding period matters for the tax rate

A dividend only qualifies for these lower rates if you held the stock for a minimum time around the payment date. Specifically, you must have owned the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the date by which you must own the stock to receive the dividend payment.

If you do not meet this holding period, the dividend is taxed as ordinary income at your regular tax bracket rate, which is much higher. For example, if you are in the 24% bracket and receive an unqualified dividend, it is taxed at 24% instead of 15%. This rule prevents people from buying stock just before a dividend payment and selling immediately after.

The holding period requirement is per stock, not per account. You can hold one stock long enough and another not long enough in the same year, and the dividends will be taxed differently.

State and local taxes on dividends

Federal tax rates are only part of the picture. Most states also tax dividend income, and the rates vary widely. Some states tax dividends at the same rate as ordinary income. Others have a lower rate or no state income tax at all.

Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). If you live in one of these states, you pay only the federal rate. If you live elsewhere, your state tax bill is added on top.

Some states, like Illinois and Mississippi, tax dividends at a flat rate that differs from their ordinary income rate. Others, like California, tax dividends as ordinary income with no special rate. Local taxes in some cities and counties add another layer. Your total tax on dividends is the sum of federal, state, and any local taxes.

How to report may have access to dividends on your tax return

Dividends are reported to you on a Form 1099-DIV, which your brokerage or mutual fund company sends by January 31 each year. This form shows how much you received in ordinary dividends and how much in may have access to dividends. You report these amounts on your tax return, usually on Schedule B if you have more than a small amount of dividend income.

The tax software you use or your tax preparer will automatically apply the correct rate based on the amounts reported. You do not have to calculate the rate yourself. However, you are responsible for making sure the brokerage reported the dividends correctly. If a dividend is marked as ordinary when it should be may have access to, you can correct it on your return.

If you sold a stock before meeting the 60-day holding requirement, the brokerage may have flagged the dividend as unqualified on the 1099-DIV. You should verify this is correct, because the holding period calculation is sometimes complex when you buy and sell the same stock multiple times in a year.

How reinvested dividends are treated

If you have a dividend reinvestment plan (DRIP) that automatically buys more shares with your dividend payments, those reinvested amounts are still taxable in the year you receive them. You cannot defer the tax by reinvesting. The dividend is taxed whether you take it in cash or use it to buy more stock.

The new shares you buy with reinvested dividends have their own holding period that starts on the purchase date. If you sell those shares within 60 days, any dividends paid on them before you sell will be taxed as ordinary income. The original shares you held continue to have their own holding period.

What happens if you have losses in other investments

Capital losses from selling stocks or mutual funds can offset capital gains, but they cannot directly reduce the tax on may have access to dividends. However, if your capital losses exceed your capital gains, you can use up to $3,000 of the excess loss to reduce your ordinary income in that year. This lowers your overall taxable income, which can move you into a lower tax bracket and reduce the rate applied to your may have access to dividends.

Any capital losses beyond the $3,000 annual limit carry forward to future years. This strategy is sometimes called tax-loss harvesting. If you have significant investment losses, it is worth calculating whether they will push you into a lower dividend tax bracket.

Frequently Asked Questions

Can I choose to have my dividends taxed as ordinary income instead of may have access to?

No. If a dividend meets the qualification requirements, it must be taxed at the may have access to rate. You cannot elect to pay a higher rate. However, if you want to avoid the may have access to dividend rate for a specific stock, you could sell it before the ex-dividend date so you do not receive the dividend at all.

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. If you receive a dividend after inheriting but before holding it for 60 days, that dividend is taxed as ordinary income. Once you have held the inherited stock for 60 days, future dividends are may have access to.

Do I pay tax on dividends if I have no other income?

If your only income is may have access to dividends and it falls below the standard deduction for your filing status, you owe no federal tax. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. However, you may still need to file a return to claim other credits or to satisfy state requirements.

How does the 3.8% net investment income tax work?

This tax applies to high-income households and is added on top of the 20% may have access to dividend rate. It applies to single filers with modified adjusted gross income over $200,000 and married filing jointly over $250,000. If you are subject to it, your effective federal rate on may have access to dividends is 23.8%.

If I receive a dividend in December, when do I pay tax on it?

You pay tax on the dividend in the year you receive it, regardless of when you receive it. A dividend paid in December 2024 is reported on your 2024 tax return and is due by April 15, 2025. The payment date matters for determining which tax year it belongs to, not the ex-dividend date.