The core difference: tax rate and holding period

Ordinary dividends are taxed at your regular income tax rate — the same rate you pay on wages or salary. may have access to dividends are taxed at a lower rate, usually 0%, 15%, or 20% depending on your total income for the year. The difference in what you owe can be substantial.

To receive the lower tax rate on may have access to dividends, you must hold the stock for a minimum number of days. For most stocks, you need to own the shares for at least 60 days during a 121-day window that centers on the dividend payment date. If you sell too soon, the dividend reverts to ordinary status and you pay your full income tax rate on it.

Your brokerage will report which dividends are may have access to and which are ordinary on your tax forms at year-end. You do not need to track the holding period yourself — the broker does that work. But understanding the difference matters because it changes how much tax you actually owe.

Key Takeaways

  • Ordinary dividends are taxed as regular income at your marginal tax rate; may have access to dividends receive preferential rates of 0%, 15%, or 20%.
  • To may have access to for the lower rate, you must hold the stock for at least 60 days within a 121-day holding period centered on the ex-dividend date.
  • Selling shares before the holding period ends converts may have access to dividends back to ordinary status, raising your tax bill.
  • Your brokerage automatically identifies which dividends are may have access to on your 1099-DIV form; you report both types on your tax return.
  • The tax savings from may have access to dividends can range from hundreds to thousands of dollars annually, depending on your income and dividend amount.

Why the holding period matters

Congress created the holding period rule to prevent people from collecting a dividend and selling immediately, treating it as a capital gain rather than income. The 60-day requirement is strict: if you own the stock for only 59 days, the entire dividend becomes ordinary.

The 121-day window runs from 60 days before the ex-dividend date to 60 days after it. The ex-dividend date is the cutoff — if you buy on or after that date, you do not receive the dividend at all. Your broker will show you the ex-dividend date when you look up a stock's dividend history.

If you bought shares specifically to collect a dividend and planned to sell right after, the holding period requirement can eliminate your tax advantage. Some investors factor this into their strategy and hold longer than they otherwise would, or skip the dividend stock entirely if they cannot meet the timing.

How ordinary dividends are taxed

Ordinary dividends are added to your other income for the year and taxed at your marginal tax bracket. If you earn $60,000 in wages and receive $2,000 in ordinary dividends, your taxable income becomes $62,000. The $2,000 is taxed at whatever rate applies to that portion of your income — potentially 22% or 24% depending on your filing status and other factors.

Ordinary dividends include distributions from money market funds, bond funds, preferred stock dividends that do not meet the holding period, and dividends from real estate investment trusts (REITs). They also include any dividend that fails the holding period test, even if it came from a stock that normally pays may have access to dividends.

Your brokerage reports ordinary dividends in Box 1a of Form 1099-DIV. You report this amount on your tax return as part of your total income, and it is subject to federal income tax, state income tax (in most states), and self-employment tax if you are self-employed.

How may have access to dividends are taxed

may have access to dividends are taxed at the long-term capital gains rate, which is lower than ordinary income rates. The rate depends on your filing status and total taxable income for the year. For 2024, the rates are 0% for income below $47,025 (single filers), 15% for income from $47,025 to $518,900, and 20% for income above that threshold.

This means a may have access to dividend of $1,000 might cost you $150 in federal tax (at the 15% rate), while the same $1,000 in ordinary dividends could cost $220 or more (at the 22% or 24% rate). Over time, if you hold dividend-paying stocks long-term, the difference compounds.

Your brokerage reports may have access to dividends separately in Box 1b of Form 1099-DIV. You report this amount on Schedule B of your tax return, and it is taxed at the preferential rate. State taxes still apply in most states, though a few states do not tax dividends at all.

Which stocks and funds pay may have access to dividends

Most U.S. common stocks pay may have access to dividends if you meet the holding period. Large-cap dividend stocks, dividend aristocrats, and blue-chip companies typically may have access to. Preferred stocks may or may not may have access to depending on the terms — check your brokerage statement or the company's investor relations page.

Mutual funds and exchange-traded funds (ETFs) that hold stocks may distribute may have access to dividends, but the fund itself must have held the underlying stocks long enough. If a fund has high turnover or holds stocks for short periods, more of its distributions may be ordinary rather than may have access to.

REITs, master limited partnerships (MLPs), and bond funds almost always distribute ordinary dividends, not may have access to ones. Money market funds also pay ordinary dividends. If you own these for tax-advantaged income, understand that you will pay full income tax rates on the distributions.

What happens if you do not meet the holding period

If you buy a stock on June 1 and it pays a dividend on July 15, you must hold it through at least August 13 to get the may have access to rate. If you sell on August 10, the dividend becomes ordinary, and you pay your full income tax rate on it instead of the preferential rate.

This is one reason some investors avoid "dividend capture" strategies — buying a stock just before the ex-dividend date and selling right after. The holding period requirement makes this strategy unprofitable for most people, especially after accounting for trading costs and the risk that the stock price drops.

If you inherited stock or received it as a gift, the holding period clock starts from the date you received it, not from when the original owner bought it. This is important if you inherit dividend-paying shares and plan to sell them soon.

Reporting dividends on your tax return

Your brokerage sends you Form 1099-DIV by January 31 each year. This form shows ordinary dividends in Box 1a and may have access to dividends in Box 1b. If you received dividends from multiple brokerages, you will receive multiple 1099-DIV forms — add them all together when you file.

You report ordinary dividends on Schedule B (Interest and Ordinary Dividends) of your Form 1040. You report may have access to dividends on Schedule D (Capital Gains and Losses), which feeds into the preferential tax rate calculation. If your total dividends are under $1,500, you may be able to report them directly on Form 1040 without Schedule B.

If the amount on your 1099-DIV does not match what you expected, contact your brokerage. Errors happen — a dividend might be misclassified, or a payment might be missing. Your brokerage can issue a corrected form if needed.

Frequently Asked Questions

Can I lose the may have access to dividend rate if I sell the stock after the dividend is paid?

No. Once the dividend is paid and you have held the stock for the required 60 days, the dividend is locked in as may have access to. You can sell the stock the next day and the dividend remains may have access to. The holding period must be met before or on the payment date, not after.

Do I have to pay state income tax on may have access to dividends?

Most states tax may have access to dividends as ordinary income, so you pay both federal and state tax. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividends at all. Check your state's tax rules to know what you owe.

What if I bought the stock before the ex-dividend date but sold it before the 60-day holding period ended?

The dividend becomes ordinary. The holding period is measured from the ex-dividend date forward, not backward. If you sell before 60 days have passed since the ex-dividend date, you lose the may have access to rate regardless of when you originally bought the shares.

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

Neither. Dividends inside a 401(k), IRA, or other tax-deferred account are not taxed at all while the money stays in the account. When you withdraw from the account in retirement, the entire withdrawal is taxed as ordinary income (or not taxed at all, in the case of a Roth IRA). The may have access to dividend distinction does not apply to retirement accounts.

If I own a dividend stock in a taxable account and also in a retirement account, do I get the may have access to rate on both?

Only the dividend in the taxable account may may have access to for the lower rate, and only if you meet the holding period. The dividend in the retirement account is not taxed at all while it remains in the account. When you eventually withdraw from the retirement account, that withdrawal is taxed as ordinary income, not as a dividend.