may have access to dividends are taxed at a lower rate than ordinary income, but only if the stock meets specific holding requirements

A may have access to dividend is a payment from a company to a shareholder that the IRS taxes as a capital gain rather than as ordinary income. This matters because capital gains rates are lower than income tax rates for most people. If you hold a stock for at least 60 days around the dividend payment date, the dividend usually counts as may have access to. If you don't meet the holding period, the IRS treats it as ordinary income and taxes it at your regular income tax rate.

The difference is real money. If you're in the 22% ordinary income tax bracket, a may have access to dividend might be taxed at 15% instead. On a $1,000 dividend, that's $70 you keep rather than pay. The exact rate depends on your total income for the year — may have access to dividends can be taxed at 0%, 15%, or 20%, depending on which tax bracket you fall into.

Key Takeaways

  • may have access to dividends are taxed at capital gains rates (0%, 15%, or 20%) instead of your ordinary income tax rate, which can be as high as 37%.
  • You must hold the stock for at least 60 days during a 121-day window centered on the dividend payment date for the dividend to count as may have access to.
  • Preferred stock dividends and dividends from certain foreign companies may not count as may have access to even if you meet the holding period.
  • Your tax software or brokerage statement will usually label dividends as may have access to or non-may have access to, so you don't have to calculate it yourself.
  • If you sell a stock shortly after buying it for its dividend, the dividend will be taxed as ordinary income, which can wipe out the benefit of the dividend payment.

The 60-day holding requirement and how it works

The IRS requires you to hold the stock for at least 60 days within a 121-day period that starts 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 — if you buy on or after that date, you don't get the payment. This window exists to prevent people from buying a stock just before the dividend, collecting the payment, and selling immediately.

The 121-day window runs from 60 days before the ex-dividend date through 60 days after the payment date. You need to own the stock for at least 60 of those 121 days. If you buy the stock 30 days before the ex-dividend date and hold it for 90 days after, you meet the requirement. If you buy it 10 days before the ex-dividend date and sell it 40 days later, you don't — you only held it for 50 days within the window.

Preferred stock has a different rule: you must hold it for at least 90 days within a 181-day window. The same principle applies, but the periods are longer because preferred stock dividends are often larger.

Which dividends don't count as may have access to

Not all dividend payments may have access to for the lower tax rate, even if you meet the holding period. Dividends from real estate investment trusts (REITs) are always taxed as ordinary income. Dividends from master limited partnerships (MLPs) are also taxed as ordinary income. If a company is not a U.S. corporation or is incorporated in a country without a tax treaty with the United States, its dividends usually don't may have access to either.

Dividends paid by certain financial institutions on certain types of accounts may not may have access to. Some mutual funds hold stocks that don't pay may have access to dividends, so the fund itself distributes non-may have access to dividends to you. Your brokerage statement will show which dividends are may have access to and which are not — you don't have to figure this out on your own.

How may have access to dividends affect your tax bracket

may have access to dividends are taxed at capital gains rates, which are 0%, 15%, or 20% depending on your total taxable income for the year. These rates are lower than ordinary income tax rates, which range from 10% to 37%. The exact rate you pay depends on where your income falls within the tax brackets for your filing status.

For 2024, if you're single and your taxable income is under $47,025, may have access to dividends are taxed at 0%. From $47,025 to $518,900, they're taxed at 15%. Above $518,900, they're taxed at 20%. These thresholds change each year for inflation. If you're married filing jointly, the income ranges are higher. Your tax software will calculate which rate applies to you based on your total income.

This means may have access to dividends can push you into a higher tax bracket even though they're taxed at a lower rate than ordinary income. If you have $45,000 in ordinary income and $5,000 in may have access to dividends, the dividends might be taxed at 15% while your ordinary income is taxed at 12%. The two types of income are stacked in order, with ordinary income taxed first.

What happens if you don't meet the holding period

If you sell the stock before you've held it for 60 days within the 121-day window, the dividend is taxed as ordinary income at your regular tax rate. This can happen even if you held the stock for months — what matters is the 60-day window around the ex-dividend date. If you buy a stock in November for its December dividend and sell it in January, you may not meet the holding period depending on the exact dates.

This is why buying a stock specifically for its dividend and selling shortly after can be a losing strategy. If you buy at $100 and receive a $3 dividend, but the stock price drops to $99 and you sell, you've lost $1 on the sale. If the $3 dividend is taxed as ordinary income at 24%, you owe $0.72 in tax. Your net result is a $1.72 loss. If the dividend had been may have access to and taxed at 15%, you would have owed $0.45 in tax, but you'd still have a $1.45 loss overall.

How to track may have access to versus non-may have access to dividends

Your brokerage — whether it's Fidelity, Schwab, Vanguard, or another firm — will track which dividends are may have access to and which are not. When you download your year-end tax documents, the brokerage will provide a Form 1099-DIV that separates may have access to dividends from non-may have access to dividends. You report may have access to dividends on Schedule B of your tax return, and your tax software will apply the correct capital gains rate.

If you hold stocks in multiple accounts or at multiple brokerages, each one will send you a separate 1099-DIV. You'll need to add them together when you file. If you hold mutual funds or ETFs, the fund company will tell you how much of each distribution is may have access to and how much is not — this varies from year to year depending on which stocks the fund holds and how long it held them.

You don't have to calculate the holding period yourself. The brokerage knows when you bought and sold each share, and it knows the ex-dividend date. If you've held the stock long enough, the dividend will be marked as may have access to on your tax documents. If you haven't, it will be marked as non-may have access to.

Frequently Asked Questions

Can I buy a stock right before the dividend and still get a may have access to dividend?

No. You must hold the stock for at least 60 days within the 121-day window centered on the ex-dividend date. If you buy the stock one day before the ex-dividend date, you can't hold it long enough to meet the requirement. The ex-dividend date is set by the company, and you must own the stock before that date to receive the dividend at all.

What if I inherit a stock with a dividend coming up?

Inherited stock has special rules. The holding period for may have access to dividends does not include the time the previous owner held it — your holding period starts when you inherit it. However, inherited stock receives a "stepped-up basis," which can affect your capital gains tax if you later sell it. Consult a tax professional about inherited stock, as the rules are complex.

Do I have to report may have access to dividends differently on my tax return?

Your tax software will handle this automatically if you enter your 1099-DIV correctly. may have access to dividends go on Schedule B and are taxed at capital gains rates. Non-may have access to dividends are treated as ordinary income. You don't fill out separate forms — the software calculates the tax based on the amounts you report.

What if my brokerage made a mistake and marked a dividend as non-may have access to when it should be may have access to?

Contact your brokerage and ask them to review the holding period. If you held the stock long enough, they should issue a corrected 1099-DIV before the tax filing deadline. If you've already filed, you can file an amended return (Form 1040-X) to claim the lower tax rate. Keep records of your purchase and sale dates to prove you met the holding requirement.

Are dividends from my 401(k) or IRA taxed as may have access to or non-may have access to?

Dividends inside a 401(k) or traditional IRA are not taxed at all while the money is in the account — the may have access to/non-may have access to distinction doesn't apply. When you withdraw money from the account in retirement, the entire withdrawal is taxed as ordinary income, regardless of whether the dividends inside were may have access to. Roth IRAs have no tax on withdrawals if you follow the rules.