The core difference: tax rate and holding period
may have access to dividends are taxed at the long-term capital gains rate, which is lower than your regular income tax rate. Ordinary dividends are taxed as regular income at your full tax bracket rate. The difference in what you owe can be substantial — a may have access to dividend might be taxed at 15 percent while an ordinary dividend from the same company is taxed at 24, 32, or higher, depending on your income.
The IRS created this split to encourage long-term investing. To get the lower rate on may have access to dividends, you have to hold the stock for a minimum period before and after the dividend payment date. Ordinary dividends have no holding requirement — you can own the stock for one day and still receive them, but you pay ordinary income tax on them.
Both types of dividends are paid by corporations to their shareholders. The difference is not about which company pays it or how much it pays. It is about how long you owned the stock and what the IRS decides to tax it as.
Key Takeaways
- may have access to dividends are taxed at capital gains rates (0, 15, or 20 percent depending on income), while ordinary dividends are taxed at your full income tax rate (10 to 37 percent).
- You must hold the stock for at least 60 days within a 121-day window around the dividend payment date for the dividend to count as may have access to.
- Preferred stock dividends and dividends from certain foreign corporations may be ordinary even if you meet the holding period.
- Your brokerage will report which dividends are may have access to and which are ordinary on your 1099-DIV form, so you do not have to calculate this yourself.
The 60-day holding period requirement
To receive the may have access to dividend tax rate, you must own the stock for at least 60 days during a 121-day window. The window starts 60 days before the ex-dividend date (the date by which you must own the stock to receive the dividend) and ends 60 days after it.
This rule exists to prevent investors from buying a stock just before a dividend payment and selling it immediately after. If you buy on day one and sell on day two, you have not held it long enough, and the dividend becomes ordinary income. The IRS counts only days you owned the stock with no restrictions on sale — days when you had full ownership and could sell anytime.
Days you owned the stock but could not sell (for example, if it was held in a restricted account or you had a short sale open against it) do not count toward the 60 days. This matters if you use options or short sales as part of your trading strategy.
Which dividends do not may have access to even with the right holding period
Some dividends are always ordinary income, regardless of how long you hold the stock. Preferred stock dividends are ordinary unless the preferred stock is traded on an established market and meets other IRS requirements. Dividends from real estate investment trusts (REITs) are ordinary. Dividends from money market funds are ordinary.
Dividends from stocks in certain foreign countries may also be ordinary if the country does not have a tax treaty with the United States or does not meet IRS standards for information sharing. If you own foreign stocks, check the 1099-DIV your broker sends you — it will show which dividends may have access to and which did not.
Dividends paid by S-corporations and partnerships are also ordinary, even though these entities pass income through to owners rather than paying corporate tax. The holding period rule does not apply to them.
How your tax bracket affects the actual rate you pay
may have access to dividends are taxed at one of three capital gains rates: 0 percent, 15 percent, or 20 percent. Which rate applies depends on your total taxable income for the year, not on the dividend amount itself. The income thresholds change each year and vary by filing status (single, married filing jointly, head of household).
For 2024, the 0 percent rate applies to single filers with taxable income up to $47,025 and married filers filing jointly up to $94,050. The 15 percent rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Income above those amounts is taxed at 20 percent. These numbers shift annually for inflation.
Ordinary dividends, by contrast, are taxed at your regular income tax bracket rate, which ranges from 10 to 37 percent depending on your total income. A person in the 24 percent bracket pays 24 percent on ordinary dividends but only 15 percent on may have access to dividends — a significant difference if you receive substantial dividend income.
How to find out which dividends you received
Your brokerage sends you a Form 1099-DIV each January for the prior year. This form lists all dividends you received and sorts them into categories: may have access to dividends, ordinary dividends, capital gain distributions, and others. You do not have to figure out which is which — the brokerage does this work and reports it to you and the IRS.
Box 1a on the 1099-DIV shows ordinary dividends. Box 1b shows may have access to dividends. If you received both types from different stocks or funds, both amounts appear. When you file your tax return, you enter these amounts on the appropriate lines of your return or Schedule B, depending on the total amount you received.
If you sold a stock during the year and did not meet the 60-day holding requirement, the brokerage will reclassify that dividend as ordinary on your 1099-DIV. You will see this reflected in the form you receive — you do not have to contact the brokerage or make the change yourself.
What happens if you do not meet the holding period
If you own a stock for fewer than 60 days in the 121-day window, the dividend is reported as ordinary income on your 1099-DIV. You pay tax on it at your full income tax rate rather than the capital gains rate. There is no penalty or additional tax — it simply moves into the ordinary dividend category and is taxed accordingly.
This is one reason some investors plan their stock purchases around dividend dates. If you know you will sell a stock soon after receiving a dividend, you may want to sell before the ex-dividend date to avoid receiving an ordinary dividend. Conversely, if you plan to hold a stock long-term, the holding period is usually not a concern because you will naturally meet it.
The rule applies per stock, not per account. If you own the same stock in multiple accounts, the holding period is calculated separately for each account. You could meet the requirement in one account and miss it in another, resulting in may have access to dividends in one and ordinary in the other.
Frequently Asked Questions
Can I get the may have access to dividend rate if I bought the stock one day before the ex-dividend date?
No. You need to own the stock for at least 60 days within the 121-day window centered on the ex-dividend date. Buying one day before means you own it for only one day, far short of the 60-day requirement. The dividend will be ordinary income.
If I inherit stock, do the previous owner's holding period count toward my 60 days?
No. Your holding period starts on the date you inherit the stock, not when the previous owner bought it. However, inherited stock receives a "stepped-up basis" for tax purposes, which is a separate benefit. You will need to hold the inherited stock for 60 days after the ex-dividend date to receive may have access to dividend treatment on future dividends.
What if my dividend is partially may have access to and partially ordinary?
This can happen if you bought shares at different times or sold some shares before meeting the holding period. Your brokerage will split the dividend between may have access to and ordinary on your 1099-DIV. You report both amounts on your tax return — the may have access to portion at the capital gains rate and the ordinary portion at your income tax rate.
Do I have to report may have access to dividends differently on my tax return?
Yes, but your brokerage makes it simple. may have access to dividends go on Schedule B, line 5b (or the equivalent on your tax software). Ordinary dividends go on line 5a. Your tax software will ask you to enter the amounts from your 1099-DIV, and it will apply the correct tax rate to each automatically.
If a company cuts its dividend, does that change whether it is may have access to or ordinary?
No. The dividend amount does not affect the classification. A $0.50 may have access to dividend and a $0.10 may have access to dividend are both taxed at capital gains rates if you meet the holding period. The classification depends on the stock type, the company's country of incorporation, and your holding period — not on the size of the payment.