The core difference: tax rate

Ordinary dividends are taxed as regular income at your marginal tax rate — the same rate you pay on wages or interest. may have access to dividends are taxed at the lower capital gains rates: 0%, 15%, or 20%, depending on your total income for the year.

This difference can save you thousands. If you are in the 24% tax bracket and receive $10,000 in may have access to dividends instead of ordinary dividends, you owe $1,500 less in federal tax (15% instead of 24%). The gap widens for higher earners: someone in the 37% bracket saves $1,700 on that same $10,000.

The IRS does not automatically sort your dividends. Your brokerage statement will label them, but you are responsible for reporting each type correctly on your tax return. Misclassifying them — treating ordinary dividends as may have access to, or vice versa — can trigger an audit.

Key Takeaways

  • Ordinary dividends are taxed at your full marginal rate (10% to 37%), while may have access to dividends use the lower capital gains rates (0%, 15%, or 20%).
  • 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. corporation or may have access to foreign corporation.
  • Your brokerage reports which dividends are may have access to on Form 1099-DIV, but you must enter them on the correct lines of your tax return.
  • Ordinary dividends include most bond interest, preferred stock dividends from certain companies, and dividends from real estate investment trusts (REITs).
  • Selling a stock just before the ex-dividend date to avoid the dividend, then buying it back, does not save tax and may trigger wash-sale rules.

What makes a dividend may have access to

The IRS has three hard rules. First, the stock must be issued by a U.S. corporation or a may have access to foreign corporation — usually one that trades on a U.S. exchange or is incorporated in a U.S. possession. Dividends from foreign stocks, even large ones, are typically ordinary unless the country has a tax treaty with the United States that covers dividends.

Second, you must hold the stock for at least 60 days during a 121-day window centered on the ex-dividend date. The ex-dividend date is the cutoff: if you own the stock on that date, you receive the dividend. You must own it for 60 of the 121 days that run from 60 days before the ex-date to 60 days after it. If you buy on day 50 before and sell on day 20 after, you own it for only 70 days in the window — enough. If you buy the day before the ex-date and sell the day after, you own it for only 2 days — not enough, and the dividend is ordinary.

Third, the dividend must not be one the IRS has declared ordinary by rule. This includes dividends on preferred stock held less than 90 days, dividends paid by real estate investment trusts (REITs), dividends paid by certain insurance companies on their policies, and distributions from money market funds.

How to identify them on your tax forms

Your brokerage sends you Form 1099-DIV by January 31 each year. Box 1a shows total ordinary dividends; Box 1b shows may have access to dividends. If Box 1b is blank or zero, all your dividends from that brokerage are ordinary. If both boxes have amounts, you received both types.

On your personal tax return, ordinary dividends go on Schedule B (Interest and Ordinary Dividends), which feeds into your regular income. may have access to dividends go on Schedule D (Capital Gains and Losses), where they are taxed at the preferential rates. If you use tax software, it usually routes them automatically once you enter the 1099-DIV data — but check the summary to be sure.

If you received dividends from a foreign stock or a REIT, your 1099-DIV may still show them in Box 1a (ordinary). Do not move them to Box 1b on your return, even if the brokerage made an error. Report what the form says, then file an amended return if you later discover the brokerage was wrong.

When ordinary dividends are the only option

Certain investments pay only ordinary dividends, no matter how long you hold them. Real estate investment trusts (REITs) are the most common. A REIT is a company that owns and manages real estate; by law, it must distribute at least 90% of its taxable income to shareholders. Those distributions are taxed as ordinary income, even though the underlying assets are real property.

Master limited partnerships (MLPs) and business development companies (BDCs) also pay ordinary dividends. So do most bond funds and money market funds — the interest they distribute is ordinary income. Preferred stock dividends are ordinary if you held the stock less than 90 days, or if the preferred stock is issued by certain financial institutions.

If you own a mutual fund or exchange-traded fund (ETF), the fund itself receives dividends from its holdings. The fund then distributes those to you. The character of the distribution — ordinary or may have access to — depends on what the fund held and how long, not on how long you held the fund. A fund that buys and sells stocks frequently may distribute mostly ordinary dividends, even if you held the fund for years.

The holding period trap

The 60-day rule catches many investors off guard. If you buy a stock three days before the ex-dividend date, you own it for only 2 days after (the ex-date plus one more), totaling 3 days in the 121-day window. The dividend is ordinary. This happens often with dividend-focused investors who chase high-yield stocks without checking the calendar.

The rule also applies separately to each dividend. If you own a stock for 90 days and it pays two dividends, both are may have access to. If you sell after the first dividend but before the second ex-date, the first is may have access to and the second is ordinary (because you no longer own the stock on the second ex-date).

Selling a stock just before the ex-dividend date to avoid receiving an ordinary dividend, then buying it back after the ex-date, does not save tax. The IRS has a wash-sale rule that disallows a loss if you buy the same or substantially identical stock within 30 days before or after the sale. Even if you avoid a loss, you have still paid trading costs and may have missed a gain. The tax savings from converting one ordinary dividend to no dividend is almost never worth it.

How the tax brackets affect your rate

The rate you pay on may have access to dividends depends on your total taxable income, not just the dividend amount. The 0% rate applies to may have access to dividends that fall within your ordinary income tax bracket — for 2024, up to $47,025 for single filers and $94,050 for married filing jointly. The 15% rate applies to may have access to dividends above that but below the top of the 35% ordinary bracket. The 20% rate applies to may have access to dividends above that.

This means a retiree with $40,000 in ordinary income and $10,000 in may have access to dividends may pay 0% on the first $7,025 of dividends (to reach the $47,025 threshold) and 15% on the remaining $2,975 — an effective rate of about 9.5% on the full $10,000. A high earner with $500,000 in ordinary income pays 20% on all may have access to dividends.

Tax-loss harvesting and charitable giving can lower your ordinary income, which may push may have access to dividends into the 0% or 15% bracket. This is one reason financial advisors look at your full tax picture, not just one account or one year.

Reporting errors and what to do

If your 1099-DIV shows a dividend as ordinary when you believe it should be may have access to, do not ignore it. First, check the holding-period rule: did you own the stock for at least 60 days in the 121-day window? If yes, contact your brokerage. They may have made an error and will issue a corrected 1099-DIV (a 1099-DIV with an "X" in the "Corrected" box).

If the brokerage confirms the dividend is ordinary (for example, because the stock is a REIT or foreign), report it as ordinary on your return. You cannot unilaterally reclassify it. If you later discover the brokerage was wrong, you can file an amended return (Form 1040-X) for that year, usually within three years of the original filing date.

If you received a 1099-DIV but did not receive the actual dividend (for example, because you sold the stock before the payment date), you still owe tax on it. The ex-dividend date, not the payment date, determines who owes the tax. Report it on your return and contact the brokerage to confirm the amount is correct.

Frequently Asked Questions

Can I convert ordinary dividends to may have access to dividends by holding the stock longer?

No. The 60-day holding period is fixed around the ex-dividend date for each dividend. If you do not meet it, the dividend is ordinary, and holding the stock for years after does not change that. However, future dividends from the same stock may be may have access to if you meet the holding period for their ex-dates.

Are dividends from my 401(k) or IRA ordinary or may have access to?

Neither. Dividends inside a 401(k), IRA, or other tax-deferred account are not taxed at all when received. They grow tax-free until you withdraw money from the account. When you withdraw, the entire amount is taxed as ordinary income (or not taxed, if it is a Roth account). The character of the dividend does not matter.

What if I own a stock through a dividend reinvestment plan (DRIP)?

The holding-period rule still applies. If you enroll in a DRIP, the dividends are reinvested automatically, but you must still own the stock for 60 days around each ex-date for that dividend to be may have access to. The reinvestment does not reset the clock.

Do I have to report may have access to dividends differently if I use tax software?

Most tax software routes them automatically when you enter your 1099-DIV. However, review the summary page to confirm ordinary dividends went to Schedule B and may have access to dividends went to Schedule D. If the software made an error, you can edit the entries before filing.

What happens if I receive a dividend from a Canadian or UK stock?

Dividends from Canadian and UK stocks are usually ordinary, not may have access to, because the IRS does not recognize them as may have access to foreign corporations for this purpose. Check your 1099-DIV; if it shows the dividend as ordinary, report it that way. Some countries have tax treaties with the U.S., but the treaty affects foreign tax credits, not the may have access to-dividend status.