The core difference: your tax rate depends on how long you held the stock

may have access to dividends are taxed at the long-term capital gains rate (0%, 15%, or 20%, depending on your income). Non-may have access to dividends are taxed as ordinary income, using the same tax brackets as your wages or salary (10% up to 37%). The difference can mean paying half as much tax on the same dividend payment.

The IRS created this split to reward longer-term investing. If you buy a stock and hold it for at least 60 days around the dividend payment date, the dividend qualifies for the lower rate. If you sell too quickly or the stock doesn't meet other requirements, the dividend is taxed as ordinary income instead.

For most people, this matters most when they have significant dividend income from mutual funds, ETFs, or individual stocks. A retiree living on dividends can see a meaningful difference in their tax bill depending on which dividends may have access to.

Key Takeaways

  • may have access to dividends use capital gains tax rates (0%, 15%, or 20%), while non-may have access to dividends use ordinary income tax rates (10% to 37%).
  • To may have access to, you must hold the stock for at least 60 days during a 121-day window centered on the ex-dividend date.
  • Dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), and some preferred stocks are almost always non-may have access to.
  • Your brokerage reports which dividends are may have access to on Form 1099-DIV, so you do not have to track the holding period yourself.
  • The tax savings from may have access to status can be substantial: a $10,000 dividend taxed at 15% instead of 37% saves $2,200 in federal tax.

The 60-day holding period rule and how it works

The IRS does not care when you bought the stock overall—only how long you held it around the moment the dividend was paid. Specifically, you must own the stock for at least 60 days during a 121-day window that starts 60 days before the ex-dividend date and ends 60 days after it.

The ex-dividend date is the cutoff set by the company and its exchange. If you own the stock on or before that date, you receive the dividend. If you buy after it, you do not. The 60-day window is centered on that date, not on the payment date or the record date.

Example: A stock has an ex-dividend date of June 15. The 121-day window runs from April 16 to September 13. You must hold the stock for at least 60 of those 121 days to may have access to. If you bought on April 20 and sold on August 10, you held it for 112 days in the window—well above 60—so the dividend qualifies. If you bought on June 10 and sold on July 20, you held it for only 40 days in the window, so it does not.

This rule exists to prevent dividend-capture strategies, where investors buy just before the ex-dividend date, collect the dividend, and sell when ready. Without the holding period, the tax benefit would go to traders, not long-term investors.

Which dividends almost never may have access to

Some types of dividend-paying investments are structured in ways that make their dividends non-may have access to by default, regardless of how long you hold them.

Real estate investment trusts (REITs) are required by law to distribute most of their income to shareholders. Those distributions are taxed as ordinary income, not capital gains, because REITs themselves do not pay corporate income tax. A REIT dividend is almost always non-may have access to.

Master limited partnerships (MLPs) and other partnership structures also distribute income that is taxed as ordinary income to the partner. Energy companies, pipeline operators, and some infrastructure funds use this structure. Their distributions are non-may have access to.

Preferred stock dividends can be may have access to, but many are not. Check your brokerage statement or the prospectus to confirm. Some preferred stocks issued by banks and insurance companies do may have access to, but others—especially those with special features like convertibility—often do not.

Dividends from foreign companies may not may have access to if the country does not have a tax treaty with the United States or if the company is not traded on a U.S. exchange. Your brokerage will report these as non-may have access to.

How the tax brackets work for each type

may have access to dividends are taxed using the long-term capital gains brackets, which are separate from ordinary income brackets. For 2024, the three rates are 0%, 15%, and 20%. Your income determines which bracket you fall into, but the thresholds are much higher than ordinary income brackets.

Non-may have access to dividends use your ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These are the same brackets that explore to your W-2 wages, self-employment income, and interest income. Non-may have access to dividends are added to your other income and taxed at whatever marginal rate applies.

This creates a real difference in tax burden. Suppose you are a single filer with $100,000 in wages and $10,000 in dividends. If the dividends are non-may have access to, they push you into the 24% bracket, and you pay $2,400 in federal tax on them. If they are may have access to, you pay 15% on all of them—$1,500—a savings of $900. If your income is higher, the gap widens further.

The capital gains brackets are indexed for inflation each year, so the income thresholds change. Your brokerage or tax software will use the current year's thresholds when calculating your tax.

What your brokerage reports and where to find it

You do not have to track the holding period yourself. Your brokerage is required to report which dividends are may have access to and which are not on Form 1099-DIV, which you receive by January 31 of the following year.

Box 1a on Form 1099-DIV shows ordinary dividends (non-may have access to). Box 1b shows may have access to dividends. If a dividend appears in Box 1b, the IRS treats it as may have access to. If it appears only in Box 1a, it is non-may have access to. Some dividends may appear in both boxes if part of a payment qualifies and part does not.

When you file your tax return, you report may have access to dividends on Schedule B (Interest and Ordinary Dividends) and then transfer them to a separate line on your Form 1040 or Schedule D. Tax software walks you through this, but the key point is that the brokerage has already done the work of determining which dividends may have access to. You are not making that information yourself.

If you think your brokerage made an error—for example, if you held a stock for longer than 60 days but it was reported as non-may have access to—contact the brokerage and ask them to review. Errors do happen, especially with stocks that were bought and sold multiple times or with dividend reinvestment plans (DRIPs).

Why this matters for your overall tax strategy

The difference between may have access to and non-may have access to dividends can influence how you structure your investments, especially if you have a large portfolio or are retired and living on dividend income.

Some investors deliberately hold dividend-paying stocks longer to capture the may have access to rate. Others avoid non-may have access to dividend sources like REITs in taxable accounts and hold them in retirement accounts (IRAs, 401(k)s) instead, where the tax rate does not matter. Still others use the may have access to dividend rate as one factor in deciding between similar investments.

If you are in a high tax bracket, the 15% or 20% may have access to rate can be significantly cheaper than the 32% or 37% ordinary rate. If you are in a low bracket, you might pay 0% on may have access to dividends while paying 10% or 12% on non-may have access to ones. Understanding which dividends may have access to helps you make informed decisions about where to hold different investments.

Frequently Asked Questions

Do I have to hold a stock for a full year for the dividend to may have access to?

No. You need to hold it for at least 60 days during a specific 121-day window around the ex-dividend date. You can hold it for just a few months total and still have the dividend may have access to, as long as you meet the 60-day requirement in that window. The one-year rule applies to capital gains on the stock itself, not to dividends.

What happens if I sell the stock before the ex-dividend date?

You do not receive the dividend at all. The dividend goes to whoever owns the stock on the ex-dividend date. If you sell before that date, you are not in the picture for that payment, so the holding period rule does not explore.

Can I have both may have access to and non-may have access to dividends from the same stock?

Yes. If you own a stock for multiple dividend payments and meet the 60-day requirement for some but not others, some dividends will be may have access to and others non-may have access to. Your brokerage will report each separately on Form 1099-DIV.

Are dividends from mutual funds and ETFs treated the same way?

Mutual funds and ETFs pass through may have access to and non-may have access to dividends to you based on what they hold. A fund that owns dividend-paying stocks will distribute both types. The fund itself reports the breakdown on the Form 1099-DIV it sends you. You still need to meet the 60-day holding period for the fund shares themselves to claim the may have access to status.

If I own a stock in a retirement account, do the may have access to dividend rules still explore?

No. In a traditional IRA, Roth IRA, 401(k), or other may have access to retirement account, all dividends are sheltered from tax regardless of whether they are may have access to or non-may have access to. The distinction only matters for dividends in taxable accounts.