Most states tax may have access to dividends, but the rate depends on where you live

Whether you pay state income tax on may have access to dividends depends entirely on your state. Some states don't tax investment income at all. Others tax may have access to dividends at the same rate as ordinary income. A few states have created special lower rates for dividends. The federal government taxes may have access to dividends at a preferential rate (0%, 15%, or 20%), but that break does not automatically carry over to your state return.

The key distinction is between may have access to dividends and ordinary dividends. may have access to dividends come from stocks you've held for more than 60 days around the dividend payment date, and they get favorable federal treatment. Ordinary dividends don't meet that holding period. Your state may treat them differently than the federal government does, or may not distinguish between them at all.

Key Takeaways

  • Nine states have no income tax at all, so you pay nothing to the state on any dividends.
  • Most states that tax income treat may have access to dividends the same as ordinary income and tax them at your regular state rate.
  • A handful of states offer reduced rates on may have access to dividends, but these are less common than you might expect.
  • Your federal tax return and your state tax return are separate, so a may have access to dividend rate at the federal level does not reduce your state bill.
  • You report state dividend income on your state return using the same dividend figures from your federal return, but your state's rules determine the tax owed.

States with no income tax on dividends

Nine states do not tax income at all, which means dividends are not taxed at the state level: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, but phases out the dividend tax by 2024). If you live in one of these states, you owe no state tax on may have access to dividends, though you still owe federal tax.

New Hampshire's situation is transitional. The state currently taxes dividends and interest income at 5%, but legislation has phased this tax down, with the rate dropping to 4% in 2023 and scheduled to reach 0% by 2024. Check your state's current rules if you live there, because the phase-out may affect your 2024 return.

States that tax may have access to dividends at ordinary income rates

The majority of states that have income tax treat may have access to dividends as ordinary income and tax them at your regular state rate. This means if your state income tax rate is 5%, you pay 5% on may have access to dividends just as you would on wages or salary. States in this category include California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, and Wisconsin.

The federal preferential rate for may have access to dividends does not reduce your state tax. You calculate state tax on the same dividend amount reported on your federal return, but using your state's rules and rates. Some states have progressive tax brackets, so the rate you pay on dividends depends on your total income for the year.

States with reduced rates on may have access to dividends

A small number of states offer lower tax rates specifically for may have access to dividends. Arkansas taxes may have access to dividends at a reduced rate compared to ordinary income. Utah allows a tax credit for may have access to dividends. Arizona previously had preferential treatment for dividends but has phased it out. The specifics vary by state and change periodically, so you should verify your state's current rules if you live in one of these states.

Even when a state offers a reduced rate, it is typically not as favorable as the federal rates. The federal government taxes may have access to dividends at 0%, 15%, or 20% depending on your income level, while state reduced rates are usually a few percentage points lower than the ordinary income rate but still substantial.

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

You report may have access to dividends on your state tax return using the same figures from your federal return. Your brokerage or mutual fund company sends you a Form 1099-DIV that breaks down ordinary dividends and may have access to dividends. You report these amounts on your federal return first, which determines your federal tax. Then you use the same dividend amounts on your state return and apply your state's rules.

Most state returns have a line or section for dividend income. Some states ask you to report all dividends together; others ask you to separate may have access to from ordinary. Check your state's tax form instructions or contact your state tax agency if you're unsure where to report them. If you use tax software, it typically handles this automatically once you enter the dividend information from your 1099-DIV.

What happens if you move to a different state

If you moved during the tax year, you may owe tax to both your old state and your new state on dividends received while you lived there. Most states tax based on residency during the year, so dividends received while you were a resident are taxable in that state. You report the portion of the year you lived in each state on your state returns.

Some states offer credits to prevent double taxation, but you have to claim them. If you moved mid-year, file a part-year resident return in both states and report only the income earned during the months you lived there. Keep documentation of when you moved, such as a lease or deed, to support your filing position.

Frequently Asked Questions

If I get a 0% federal rate on may have access to dividends, do I owe nothing to my state?

No. The federal 0% rate applies only to your federal tax. Your state has its own rules and rates. Most states tax may have access to dividends at the ordinary income rate regardless of the federal treatment. You must check your specific state's rules to know what you owe.

Are dividends from a 401(k) or IRA treated the same way?

No. Dividends inside a 401(k) or traditional IRA are not taxed at the state level until you withdraw the money. Dividends in a Roth IRA are never taxed at the state level if withdrawn according to the rules. Only dividends in taxable brokerage accounts are subject to state tax in the year received.

Do I have to file a state return if I only have dividend income?

It depends on your state's filing threshold and your total income. Most states require you to file if your income exceeds a certain amount, even if it's all from dividends. Check your state tax agency's website for the current threshold, or use tax software that will prompt you based on your income.

What if my state doesn't have an income tax but I earned dividends there?

If you live in a state with no income tax, you owe that state nothing on dividends. However, you still owe federal tax on them. If you earned dividends in a state where you don't live, you generally don't owe that state tax unless you were a resident during the year you received them.