People at risk of developing clinical depression exhibit attentional biases for emotional faces. To clarify whether such effects occur at an early, automatic, or at a late, deliberate processing stage of emotional processing, the present study used high-density electroencephalography during both covert and overt processing of sad, fearful, happy, and neutral expressions in healthy participants with high dysphoria (n = 16) and with low dysphoria (n = 19). A state-of-the-art non-parametric permutation-based statistical approach was then used to explore the effects of emotion, attentional task demands, and group. Behaviorally, participants responded faster and more accurately when overtly categorizing happy faces and they were slower and less accurate when categorizing sad and fearful faces, independent of the dysphoria group. Electrophysiologically, in an early time-window (N170: 140–180 ms), there was a significant main effect for the dysphoria group, with greater negative voltage for the high vs. low dysphoria group over the left-sided temporo-occipital scalp. Furthermore, there was a significant group by emotional interaction, with the high dysphoria group displaying greater negative amplitude N170 for happy than fearful faces. Attentional task demands did not influence such early effects. In contrast, in an intermediate time-window (EPN: 200–400 ms) and in a late time-window (LPP: 500–750 ms) there were no significant main effects nor interactions involving the dysphoria Group. The LPP results paralleled the behavioral results, with greater LPP voltages for sad and fearful relative to happy faces only in the overt task, but similarly so in the two dysphoria groups. This study provides novel evidence that alterations in face processing in dysphoric individuals can be seen at the early stages of face perception, as indexed by the N170, although not in the form of a typical pattern of mood-congruent attentional bias. In contrast, intermediate (EPN) and late (LPP) stages of emotional face processing appear unaffected by dysphoria. Importantly, the early dysphoria effect appears to be independent of the top-down allocation of attention, further supporting the idea that dysphoria may influence a stage of automatic emotional appraisal. It is proposed that it may be a consequence of a shift from holistic to feature-based processing of facial expressions, or may be due to the influence of negative schemas acting as a negative context for emotional facial processing.