How Dividend Taxes Work and What You'll Owe

Yes, you pay tax on dividends — but the rate depends on the type of dividend and how long you held the stock

Dividends are taxable income. The IRS treats them as either ordinary income or may have access to dividends, and the tax rate you pay on each type is different. Ordinary dividends are taxed at your regular income tax rate, which can be as high as 37 percent. may have access to dividends get a lower rate — 0, 15, or 20 percent depending on your total income for the year. Most dividends from U.S. stocks held in regular brokerage accounts are may have access to, which is why they receive this preferential treatment.

You report dividends on your tax return whether you reinvest them or take them as cash. The brokerage firm sends you a Form 1099-DIV in January showing what you received in the previous year. You do not owe tax on dividends held inside a 401(k), traditional IRA, or Roth IRA — those accounts defer or eliminate the tax entirely, which is one reason they are valuable for long-term investing.

Key Takeaways

• may have access to dividends from U.S. stocks are taxed at 0, 15, or 20 percent; ordinary dividends are taxed at your full income tax rate, up to 37 percent.
• A dividend is may have access to only if you held the stock for more than 60 days during the 121-day window centered on the ex-dividend date.
• Dividends inside retirement accounts (401(k), IRA, Roth IRA) are not taxed until you withdraw the money, or not at all in a Roth.
• Your brokerage reports all dividends on Form 1099-DIV, which you use to fill out your tax return.
• Reinvested dividends are still taxable in the year you receive them, even though you did not take the cash.

The difference between may have access to and ordinary dividends

A may have access to dividend is one that meets the IRS holding period rule: you must own the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the cutoff — if you buy the stock on or after that date, you do not receive the dividend at all. If you do own it before that date and hold it long enough, the dividend qualifies for the lower tax rate.

Most dividends from large U.S. companies are may have access to. Dividends from foreign stocks, real estate investment trusts (REITs), and master limited partnerships (MLPs) are usually ordinary dividends and taxed at your full rate. Some mutual funds and ETFs also pay ordinary dividends, so check the fund's documentation or your 1099-DIV to know which type you received.

The holding period rule exists to prevent people from buying a stock just before the dividend payment and selling immediately after. If you sell before you have held it for 60 days, the dividend loses its may have access to status even if you originally bought it before the ex-dividend date.

What tax rate you pay on may have access to dividends

may have access to dividends are taxed at one of three rates: 0 percent, 15 percent, or 20 percent. Which rate applies depends on your taxable income for the year, not on how much the dividend itself is worth. The IRS sets income thresholds that change each year.

For 2024, the 0 percent rate applies if your taxable income is below $47,025 (single) or $94,050 (married filing jointly). The 15 percent rate applies to income between those amounts and $518,900 (single) or $583,750 (married filing jointly). Anything above that is taxed at 20 percent. These thresholds are adjusted annually for inflation, so they will be different in 2025.

Because may have access to dividends are stacked on top of your other income, a large dividend payment can push you into a higher tax bracket. If you are near a threshold, you may want to time large sales or reinvestment decisions to manage your total income for the year. A tax professional can help you model this.

How ordinary dividends are taxed

Ordinary dividends are taxed as regular income at your marginal tax rate — the same rate you pay on wages or interest. For 2024, that ranges from 10 percent to 37 percent depending on your total income and filing status. Because ordinary dividends do not get the preferential rate, they are more expensive to hold in a taxable account.

REITs are required by law to pay out at least 90 percent of their taxable income as dividends, and those dividends are almost always ordinary income. If you own REITs in a taxable brokerage account, you will pay tax at your full rate. The same is true for most bond funds and money market funds — their distributions are ordinary income, not may have access to dividends.

This is one reason many investors hold REITs and bond funds inside retirement accounts, where the tax is deferred or eliminated. A stock fund or ETF that pays may have access to dividends is more tax-efficient in a regular brokerage account.

Dividends in retirement accounts versus taxable accounts

If you own stocks, mutual funds, or ETFs inside a 401(k) or traditional IRA, you pay no tax on the dividends in the year you receive them. The tax is deferred until you withdraw money from the account in retirement. In a Roth IRA or Roth 401(k), dividends are not taxed at all, even when you withdraw — that is the main advantage of a Roth account.

This tax deferral or elimination is why retirement accounts are so valuable for dividend-paying investments. A stock that pays 3 percent in dividends will compound much faster inside a Roth IRA than in a taxable brokerage account, where you owe tax on the dividend every year.

If you have both a taxable brokerage account and a retirement account, consider holding your highest-dividend-paying investments in the retirement account and your lower-dividend or growth-focused investments in the taxable account. This strategy, called asset location, reduces your overall tax bill.

How to report dividends on your tax return

Your brokerage sends you a Form 1099-DIV by January 31 showing all dividends paid in the previous year. The form breaks down ordinary dividends, may have access to dividends, and other types separately. You use this form to fill out Schedule B (if you have more than $1,500 in interest or dividends) and then transfer the totals to your 1040.

If you reinvested your dividends instead of taking them as cash, they still appear on the 1099-DIV and are still taxable. The fact that you did not receive the money does not change the tax obligation. Many investors are surprised by this — they assume reinvested dividends are not taxed until they sell the stock, but that is not how it works.

Keep records of your dividend reinvestments because they increase your cost basis in the stock. When you eventually sell, a higher cost basis means a smaller capital gain and less tax owed. Your brokerage usually tracks this automatically, but it is worth verifying on your year-end statement.

Tax-loss harvesting and dividends

If you have stocks that have lost value, you can sell them to realize a capital loss, which offsets capital gains or up to $3,000 of ordinary income in a given year. However, if you want to buy the same stock back right away, the IRS has a rule called the wash-sale rule that prevents you from claiming the loss if you buy the same or a substantially identical stock within 30 days before or after the sale.

Dividends do not trigger the wash-sale rule, but they do complicate it. If a stock you sold at a loss pays a dividend before you buy it back, that dividend is still taxable to you even though you no longer own the stock. This is a small cost, but it is worth knowing about if you are doing tax-loss harvesting near a dividend payment date.

Frequently Asked Questions

Do I owe tax on dividends if I reinvest them?

Yes. Reinvested dividends are taxable in the year you receive them, even though the cash goes directly into buying more shares. Your brokerage reports them on Form 1099-DIV, and you report them on your tax return the same way you would if you had taken the cash.

What if I own a dividend stock for less than 60 days?

The dividend is taxed as ordinary income at your full tax rate instead of the lower may have access to rate. The 60-day holding period is measured during a 121-day window centered on the ex-dividend date, so timing matters if you are buying or selling near that date.

Are dividends from foreign stocks taxed differently?

Yes. Dividends from foreign companies are almost always ordinary income, not may have access to dividends, so they are taxed at your full rate. Some countries also impose a withholding tax on dividends paid to U.S. investors, though you may be able to claim a credit for that on your tax return.

Do I have to pay tax on dividends in a Roth IRA?

No. Dividends inside a Roth IRA are never taxed, even when you withdraw the money in retirement. This is one of the main reasons Roth accounts are valuable for long-term dividend investing.

What is Form 1099-DIV and when do I get it?

Form 1099-DIV is sent by your brokerage by January 31 and shows all dividends you received in the previous year, broken down by type. You use it to report dividends on your tax return. If you have multiple brokerages, you will receive a separate 1099-DIV from each one.