Why the Record Date Still Sets the Ex-Dividend Date Under T+1, and the 60-Day Tax Test

A cash dividend has an ex-dividend date, the cutoff that decides who receives the payout. For U.S. investors, two sets of rules connect to that date: trading rules that set it, and a tax test that depends on it.

The first is a settlement change with a compliance date of May 28, 2024. The second is an Internal Revenue Service holding-period test that decides whether a dividend is treated as qualified for tax purposes. The IRS measures that test from the same ex-dividend date. Both rules matter for a shareholder who receives a cash dividend, since one decides eligibility and the other decides tax treatment.

Why the Record Date Still Sets the Ex-Dividend Date

Under the current FINRA rule, the record date decides the ex-dividend date for payouts worth less than 25% of a security’s value when definitive information is received sufficiently in advance of the record date. The rule covers cash dividends, stock dividends and warrant distributions in that range. When the record date is a business day, the ex-date falls on that same day.

If the record date falls on a non-delivery date that FINRA’s Uniform Practice Code Committee has designated, the ex-date moves to the first business day before the record date. The ex-date must be a business day, either the record date itself or the first business day before it. The rule applies this method only where the information about the payout arrives sufficiently before the record date.

The ex-date works as the cutoff for ownership. A buyer who acquires shares on or after that date does not hold the shares in time to receive the payout, so the record date determines which holders are entitled to the dividend.

The 25% threshold separates this treatment from larger distributions. Paragraph (b)(2) of the same rule covers cash dividends or distributions, stock dividends and/or splits, and warrant distributions that are 25% or greater of the value of the subject security. For those, the ex-date is the first business day following the payable date.

When definitive information arrives too late for the record-date method, a separate paragraph sets the ex-date at the first business day that the committee considers practical.

Settlement Date
The SEC adopted the T+1 rules on February 15, 2023, and their compliance date was May 28, 2024, when the standard settlement cycle moved from two business days to one.

What Changed on May 28, 2024

The SEC adopted rules on February 15, 2023, that shorten the standard settlement cycle for most broker-dealer securities transactions from two business days after the trade date to one, which means settlement occurs one business day after the trade. The compliance date was May 28, 2024.

The SEC says the shorter cycle is meant to benefit investors and reduce credit, market and liquidity risks in securities transactions. SEC Chair Gary Gensler said it would also reduce latency, lower risk and promote efficiency and liquidity. The change applies to the settlement of most broker-dealer transactions in securities.

FINRA’s rulebook page lists several amendments to FINRA Rule 11140, which governs normal ex-dividend and ex-warrants dates. Among them, SR-FINRA-2016-047 took effect Sept. 5, 2017, and SR-FINRA-2023-017 took effect May 28, 2024, the SEC’s compliance date for the T+1 cycle.

Under the amended rule, which became operative May 28, 2024, the record date sets the ex-date for payouts under the 25% threshold when definitive information is received sufficiently in advance of the record date.

FINRA Regulatory Notice 24-04 states that the amendments become operative on May 28, 2024, the SEC’s compliance date, or on a later date if the SEC sets one. The notice reports that DTCC, the Securities Industry and Financial Markets Association and the Investment Company Institute requested that market participants, including corporate issuers and listing agents, avoid corporate action events with actionable dates inclusive of May 24, 2024, through May 28, 2024, and that normal corporate actions processing may resume on May 29, 2024.

The 60-Day Test for Qualified Dividends

Qualified dividends receive a different tax treatment from ordinary dividends, and the IRS sets a holding condition for that treatment. IRS Publication 550 for 2025 says that, for common stock, the shares must be held for more than 60 days during a 121-day period that begins 60 days before the ex-dividend date.

The 121-day period therefore runs from 60 days before the ex-dividend date through 60 days after it.

The day the shares are sold counts toward the holding period, but the day they are acquired does not. The count therefore depends on both the purchase and the sale dates, measured against the ex-dividend date.

A holder who sells within the window may have fewer than the required days, which can leave the dividend outside the qualified category.

Preferred Stock, Reinvestment and Service Charges

Preferred stock has a longer test. The shares must be held for more than 90 days during a 181-day period that begins 90 days before the ex-dividend date, if the dividends cover periods totaling more than 366 days. If the dividends cover periods totaling less than 367 days, the common stock rule applies.

Reinvesting does not remove the income. If dividends buy more stock at fair market value, the dividends are still reported as income. If the plan allows purchases below fair market value, the fair market value of the additional stock is reported on the payment date.

Service charges subtracted from cash dividends before they buy more stock count as dividend income. The publication notes that the charge may be deductible.

Under the current FINRA rule, the record date decides the ex-dividend date for payouts worth less than 25% of a security’s value when definitive information is received sufficiently in advance of the record date.

Capital Gain Distributions and Other Non-Qualified Payments

Capital gain distributions are not qualified dividends. Capital gain distributions from real estate investment trusts (REITs) are reported as long-term capital gains, regardless of how long the shares were owned.

Other payments listed as not qualified include dividends on deposits at mutual savings banks, cooperative banks, credit unions and similar institutions, which are reported as interest income. They also include dividends from tax-exempt organizations and farmers’ cooperatives, and dividends on employer securities held in an employee stock ownership plan.

The list also covers dividends on stock for which the holder must make related payments, such as in a short sale. It includes payments in lieu of dividends, but only if the holder knows or has reason to know they are not qualified dividends, and payments from foreign corporations, to the extent the holder knows or has reason to know they are not qualified dividends.

How the Settlement Date and Tax Test Connect

The IRS windows are measured from the ex-dividend date, so the date set under the FINRA rule also anchors the tax test. For common stock, the 121-day period starts 60 days before that date. For preferred stock, the 181-day period starts 90 days before it.

The settlement change and the tax test answer different questions. The trading rule decides who is entitled to the payout, while the holding test decides how the payout is taxed.

For a payout under the 25% threshold, where definitive information arrives sufficiently in advance of the record date, the record date sets the ex-date, and the holding window is measured from that ex-date.