How Dividend Taxes Work and What You'll Owe
Yes, you pay taxes 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 earnings, and you report them on your tax return. However, you do not pay the same tax rate on all dividends. may have access to dividends — dividends from stocks you held for a set period — are taxed at lower rates than ordinary income. Non-may have access to dividends are taxed as regular income at your marginal tax rate.
The difference between these two categories can mean hundreds or thousands of dollars in taxes on the same dividend payment. Understanding which type you receive, and what holding period triggers the lower rate, is the main thing that changes your tax bill.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income bracket, while non-may have access to dividends are taxed at your ordinary income rate, which can be as high as 37%.
- To may have access to for the lower rate, you must have held the stock for more than 60 days during the 121-day window centered on the ex-dividend date.
- Dividends from mutual funds and ETFs follow the same may have access to versus non-may have access to rules, and the fund reports which portion is which on Form 1099-DIV.
- You report dividends on Schedule B (Form 1040) if you have more than $1,500 in ordinary dividends, or on a simpler line if you have less.
- Dividend income can push you into a higher tax bracket, which affects not only the dividend tax but also the tax on your other income.
The difference between may have access to and non-may have access to dividends
A may have access to dividend is a dividend payment from a U.S. corporation or a may have access to foreign corporation, paid on stock you held for a minimum holding period. The holding period is more than 60 days during the 121-day window that begins 60 days before the ex-dividend date. The ex-dividend date is the date by which you must own the stock to receive that particular dividend payment.
If you meet the holding period, the IRS taxes the dividend at the long-term capital gains rate: 0%, 15%, or 20%, depending on your taxable income. If you do not meet the holding period — for example, you sold the stock 30 days after buying it — the dividend is non-may have access to and taxed as ordinary income at your marginal rate, which ranges from 10% to 37%.
The practical effect: a $1,000 may have access to dividend might cost you $150 in taxes (at the 15% rate), while the same $1,000 non-may have access to dividend could cost you $370 (at the 37% rate). The holding period rule exists to discourage short-term trading and reward longer-term ownership.
Tax rates for may have access to dividends in 2024
may have access to dividends are taxed at three rates: 0%, 15%, or 20%. Your rate depends on your taxable income and filing status, not on the dividend amount itself.
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $47,025 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $47,025 to $291,875 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $291,875 | Over $551,350 |
These income thresholds change each year. The IRS publishes updated brackets in January. If your total taxable income falls in the 0% bracket, you pay no federal tax on may have access to dividends. If it falls in the 15% bracket, you pay 15% on may have access to dividends. If it exceeds the top threshold, you pay 20%.
Receiving a large dividend can push you from one bracket into another. If you are single and earn $40,000 in wages plus $10,000 in may have access to dividends, your total taxable income is $50,000. The first $7,025 of the dividend falls in the 0% bracket, and the remaining $2,975 falls in the 15% bracket, so you owe $446.25 in tax on the dividend portion.
How mutual funds and ETFs report dividend taxes
When you own a mutual fund or ETF that pays dividends, the fund itself receives dividends from the stocks it holds, then distributes a portion to you. The fund must tell you whether each distribution is may have access to or non-may have access to.
You receive this information on Form 1099-DIV, which the fund sends by January 31 each year. Box 1a shows ordinary dividends (which may include both may have access to and non-may have access to), and Box 1b shows may have access to dividends. Some funds also break out non-may have access to dividends separately in the fund's year-end statement or online account portal.
The fund's holding period matters, not yours. If the fund held a stock for the required 60 days, the dividend it receives is may have access to, and it passes that status to you. If the fund held a stock for only 30 days, the dividend is non-may have access to, even if you have owned the fund for years. This is why dividend-focused funds and index funds that hold stocks long-term tend to distribute mostly may have access to dividends, while actively traded funds may distribute more non-may have access to dividends.
Reporting dividends on your tax return
You report dividends on Schedule B of Form 1040 if your ordinary dividends exceed $1,500 for the year. If you have $1,500 or less in ordinary dividends and no other investment income, you can report the amount directly on the main Form 1040 without filing Schedule B.
Line 5b of Form 1040 is for may have access to dividends. You enter the amount from Box 1b of your 1099-DIV forms. Line 5a is for ordinary dividends, which includes non-may have access to dividends and other dividend income. The IRS uses this split to calculate your tax at the correct rate.
If you receive dividends from multiple sources — individual stocks, mutual funds, ETFs, or REITs — you add up all the may have access to dividends from all sources and enter the total on line 5b. You do the same for ordinary dividends on line 5a. The brokerage or fund sends you a 1099-DIV for each account, but you consolidate them on one tax return.
State and local taxes on dividends
Federal tax is only part of the picture. Most states tax dividend income as ordinary income, meaning you pay your state income tax rate on both may have access to and non-may have access to dividends. A few states do not tax dividends at all.
States that do not tax dividend income include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe federal tax on dividends but no state income tax. If you live elsewhere, your state tax bill depends on your state's income tax rate and whether your state offers any special treatment for may have access to dividends.
Some states, like Illinois, exempt dividend income entirely. Others, like New York, tax dividends as ordinary income. A few states tax may have access to and non-may have access to dividends differently, though this is rare. Check your state's tax authority website or ask a tax professional if you are unsure how your state treats dividend income.
How dividend income affects your overall tax bracket
Dividend income is added to your other income — wages, self-employment income, interest, and capital gains — to calculate your total taxable income. This total determines your tax bracket and affects the tax rate on all your income, not just the dividends.
If you earn $100,000 in wages and receive $50,000 in may have access to dividends, your taxable income is $150,000. The may have access to dividends are taxed at the rate that applies to that $150,000 total, not at the rate that would apply if you had only the wages. This can push you into a higher tax bracket and increase the tax on your entire income.
The same is true for non-may have access to dividends. A large non-may have access to dividend distribution can push you into the top marginal tax bracket, meaning you pay 37% federal tax on that dividend and possibly on some of your other income as well. This is one reason some investors space out the sale of appreciated securities or time dividend distributions to manage their annual income.
Frequently Asked Questions
Do I pay taxes on dividends if I reinvest them?
Yes. Reinvesting dividends does not avoid taxes. You owe tax on the dividend in the year you receive it, whether you take the cash or use it to buy more shares. The reinvested shares then become part of your cost basis for future capital gains calculations.
What if I hold a stock for exactly 60 days — does it count as may have access to?
No. The holding period is more than 60 days, not 60 days or more. You must hold the stock for at least 61 days during the 121-day window centered on the ex-dividend date. If you sell on day 60, the dividend is non-may have access to.
Are dividends from REITs taxed the same way as stock dividends?
No. REIT dividends are almost always taxed as ordinary income, not at the may have access to dividend rate. The IRS treats REIT dividends as regular income regardless of how long you held the REIT shares. Your 1099-DIV from a REIT will show the dividend in Box 1a (ordinary dividends), not Box 1b (may have access to dividends).
Can I deduct investment losses to offset dividend taxes?
Yes, but only up to a limit. You can use capital losses to offset capital gains and up to $3,000 of ordinary income per year. Any excess loss carries forward to future years. This is one reason some investors harvest losses in down years to reduce their overall tax bill.
Do I owe taxes on dividends in a 401(k) or IRA?
No, not immediately. Dividends inside a 401(k), traditional IRA, or Roth IRA are not taxed in the year you receive them. In a traditional IRA or 401(k), you pay tax when you withdraw the money in retirement. In a Roth IRA, you pay no tax on withdrawals if you follow the rules.