The core difference: tax rates
may have access to dividends are taxed at the long-term capital gains rate, which is lower than ordinary income tax rates. Nonqualified dividends are taxed as ordinary income at your regular tax bracket rate. For most people, this means may have access to dividends cost you less in taxes.
If you are in the 22% ordinary income tax bracket, a nonqualified dividend is taxed at 22%. The same dollar amount in may have access to dividends might be taxed at 15% instead. The difference compounds when you hold multiple dividend-paying stocks or receive dividends over several years.
The IRS sets three possible long-term capital gains rates: 0%, 15%, or 20%, depending on your total income for the year. Your ordinary income tax bracket does not directly determine your capital gains rate — they are separate calculations. This is why may have access to dividends can save you money even if you are in a high tax bracket.
Key Takeaways
- may have access to dividends use long-term capital gains tax rates (0%, 15%, or 20%), while nonqualified dividends use your ordinary income tax rate, which is usually higher.
- To may have access to, you must hold the stock for at least 60 days around the ex-dividend date, and the dividend must come from a U.S. company or certain foreign corporations.
- Most dividends from large U.S. companies are may have access to; dividends from money market funds, bonds, and REITs are typically nonqualified.
- Your tax filing status and total income determine which capital gains rate applies to may have access to dividends, not the amount of the dividend itself.
What makes a dividend may have access to in the first place
The IRS does not treat all dividends the same. A dividend becomes may have access to only when two conditions are both met: you held the stock long enough, and the company that paid it meets IRS requirements.
The holding period rule is strict. You must own the stock for at least 60 days during a 121-day window that centers on the ex-dividend date — the date the company sets as the cutoff for who receives the payment. If you buy a stock on day 50 before the ex-dividend date and sell it on day 10 after, you do not meet the 60-day test, even if you held it for months overall. The IRS counts only the days within that specific window.
The company requirement is simpler for most investors. Dividends from U.S. corporations and certain foreign corporations (those traded on U.S. exchanges or in countries with tax treaties with the U.S.) can be may have access to. Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and most foreign companies do not may have access to, no matter how long you hold them.
Which dividends are almost always nonqualified
Some types of dividend income never may have access to, regardless of how long you hold the investment. Money market fund dividends, bond interest, and preferred stock dividends from certain issuers are taxed as ordinary income. If you receive a 1099-INT form instead of a 1099-DIV, the income is nonqualified by definition.
REIT dividends are nonqualified even when you hold the shares for years. The same applies to dividends from master limited partnerships and most foreign stocks. If you own a mutual fund that holds these investments, the dividends the fund distributes to you carry the same nonqualified status — the fund's long holding period does not change the tax treatment.
Dividends paid by your employer's stock plan, dividends reinvested through a dividend reinvestment plan (DRIP), and dividends from stocks you borrowed to short-sell are also nonqualified. The IRS treats these as ordinary income regardless of the underlying company or how long you have owned shares.
How your income level affects the tax you owe on may have access to dividends
may have access to dividends are taxed at capital gains rates, but which rate you pay depends on your total taxable income for the year, not on the dividend amount itself. The IRS sets income thresholds for each rate, and these thresholds differ by filing status.
For 2024, if you are single and your taxable income falls below $47,025, may have access to dividends are taxed at 0%. Income between $47,025 and $518,900 is taxed at 15%. Income above $518,900 is taxed at 20%. If you are married filing jointly, the thresholds are higher: 0% up to $94,050, 15% up to $583,750, and 20% above that. These numbers change each year for inflation.
This means a single person earning $40,000 in wages plus $5,000 in may have access to dividends pays 0% tax on the dividends. The same person earning $50,000 in wages plus $5,000 in may have access to dividends pays 15% on the dividends because total income pushed them into the 15% bracket. Your ordinary income tax bracket is irrelevant — only the capital gains brackets matter for may have access to dividends.
Why the holding period rule trips up many investors
The 60-day holding requirement around the ex-dividend date catches investors off guard because it is not the same as your overall holding period. You can own a stock for two years and still fail the test if you sell it too soon after the ex-dividend date.
The 121-day window runs from 60 days before the ex-dividend date through 60 days after it. You must hold the stock for at least 60 of those 121 days. If you buy the stock 65 days before the ex-dividend date and sell it 5 days after, you held it for 70 days total within the window — that qualifies. If you buy it 50 days before and sell it 5 days after, you held it for only 55 days within the window — that does not may have access to, even though you owned the stock for 55 days overall.
The rule also does not apply to every dividend a company pays. Some companies pay monthly or quarterly dividends. The holding period applies separately to each dividend payment. You could meet the test for one quarterly dividend and miss it for the next one if you sell the stock between payments.
Strategies to track and report may have access to versus nonqualified dividends
Your brokerage statement usually labels dividends as may have access to or nonqualified when you receive them. The 1099-DIV form you get at tax time also breaks them out into separate boxes: box 1a for may have access to dividends and box 1b for nonqualified. Do not assume all dividends from a single company are the same — a company can pay both may have access to and nonqualified dividends in the same year.
If you use tax software, enter may have access to and nonqualified dividends in separate fields. The software will apply the correct tax rate to each. If you file by hand or work with a tax preparer, provide them with the 1099-DIV and any brokerage statements that show the breakdown. Mistakes here are common because the numbers look similar but the tax treatment is very different.
If you sold shares during the year, your brokerage may have adjusted the may have access to status of dividends you received before the sale. This happens when you do not meet the 60-day holding requirement. Your 1099-DIV should reflect these adjustments, but double-check if you bought and sold the same stock multiple times in one year.
Frequently Asked Questions
Can a dividend be partially may have access to and partially nonqualified?
Yes. If you own 100 shares and meet the holding requirement for 60 of them but not the other 40, the dividend on those 60 shares is may have access to and the dividend on the other 40 is nonqualified. Your brokerage tracks this and reports it separately on your 1099-DIV. This usually happens when you buy shares at different times or sell some shares before the holding period ends.
What happens if I inherit stock that pays dividends?
Dividends you receive after inheriting stock are usually nonqualified because you do not meet the 60-day holding requirement around the ex-dividend date — the holding period starts when you inherit, not when the original owner bought it. After you hold the inherited shares for 60 days around a future ex-dividend date, subsequent dividends become may have access to.
Do I have to report nonqualified dividends differently on my tax return?
Nonqualified dividends go on Schedule B (Interest and Ordinary Dividends) and are added to your ordinary income. may have access to dividends go on Schedule B as well but are reported separately and taxed using the capital gains rates. Both appear on your 1099-DIV, so your tax software or preparer will sort them into the correct places automatically.
If I lose money on a stock, does that change whether its dividends are may have access to?
No. The tax status of a dividend depends only on the holding period and the type of company, not on whether the stock price went up or down. You can receive may have access to dividends from a stock that loses value, and you can claim a capital loss on the same stock separately from the dividend tax treatment.