How to Report Form 1099-INT Interest on Your Taxes

Form 1099-INT is an Internal Revenue Service (IRS) tax form used to report interest income received by taxpayers during the year. Financial institutions, including banks, credit unions, and brokerage firms, issue this form to individuals who have earned at least $10 in interest from a single entity within a tax year. This form serves a crucial role in ensuring accurate tax filing, as the IRS also receives a copy to verify reported income. The details provided on Form 1099-INT are essential for taxpayers to correctly include their interest earnings on their federal income tax returns.

Deciphering Your Form 1099-INT

Form 1099-INT is typically received from financial entities by January 31st each year. It details interest income and identifies both the payer and recipient. Understanding the specific boxes on Form 1099-INT is important for accurate tax reporting.

Box 1, labeled “Interest Income,” reports the total taxable interest received. Box 2, “Early Withdrawal Penalty,” indicates any interest or principal forfeited due to withdrawing funds from a time deposit, like a Certificate of Deposit (CD), before its maturity date. This penalty can be deducted from gross income.

Box 3, “Interest on U.S. Savings Bonds and Treasury Obligations,” reports interest earned from these federal government securities. While this interest is generally taxable at the federal level, it is typically exempt from state and local income taxes. Box 4, “Federal Income Tax Withheld,” shows any federal income tax that the payer withheld from your interest payments. This amount is important for calculating total tax payments.

Box 8, “Tax-Exempt Interest,” reflects interest income from sources like municipal bonds, which is not subject to federal income tax. Despite being federally tax-exempt, this amount must still be reported on the tax return. Box 9, “Specified Private Activity Bond Interest,” is a subset of the amount in Box 8 and represents tax-exempt interest that may be subject to the Alternative Minimum Tax (AMT). This specific interest requires consideration when calculating AMT liability.

Box 10, “Market Discount,” shows the accrued market discount on a debt instrument during the year. This amount is generally added to taxable interest reported in Box 1 on Schedule B. Box 11, “Bond Premium,” indicates the amount of bond premium amortization for taxable covered securities. This figure can reduce the amount of taxable interest reported. Box 13, “Bond Premium on Tax-Exempt Bond,” shows the premium amortization for tax-exempt covered securities, which reduces the reportable tax-exempt interest.

Reporting Interest Income on Your Tax Return

For most taxpayers, if the total taxable interest income (from Box 1) exceeds $1,500, or if certain other conditions apply, it must be reported on Schedule B (Interest and Ordinary Dividends). If the total taxable interest is $1,500 or less and no other Schedule B conditions are met, the interest can be reported directly on the main Form 1040.

Tax preparation software streamlines this process. You enter values from relevant boxes, and the program handles calculations, determines if Schedule B is required, and populates your Form 1040.

For those filing with paper forms, taxable interest income from Box 1 is entered on line 2b of Form 1040, or on Schedule B, Part I, line 1 if required. The early withdrawal penalty from Box 2 is reported as an adjustment to income on Schedule 1 (Form 1040), reducing your adjusted gross income. Tax-exempt interest from Box 8 is reported on line 2a of Form 1040, even though it is not subject to federal income tax. Any federal income tax withheld, as indicated in Box 4, is reported on Form 1040, reducing your overall tax liability or increasing your refund. This amount is credited against the total tax due.

Handling Specific Interest Income Situations

All interest income, regardless of the amount, must be reported on your tax return. Such income should be directly entered on Schedule B, Part I, or on Form 1040 if Schedule B is not otherwise required.

Nominee interest occurs when you receive a Form 1099-INT that includes interest belonging to another person. You must report the full amount shown on the 1099-INT on your Schedule B, then subtract the portion of interest that belongs to the actual owner, identifying it as “Nominee Distribution.” If the amount passed on is $600 or more, you may also be required to issue a Form 1099-INT to the actual owner.

Bond premium arises when a bond is purchased for more than its face value. If you elect to amortize this premium, it can reduce your taxable interest income. For taxable bonds, the amortized bond premium, often reported in Box 11 of Form 1099-INT, directly offsets the interest income reported on Schedule B. For tax-exempt bonds, the amortized premium (Box 13) reduces the tax-exempt interest reported on Form 1040, line 2a.

Original Issue Discount (OID) is another form of interest that arises when certain debt instruments are issued at a price less than their stated redemption price at maturity. This discount is generally taxable as interest over the life of the obligation, even if no cash payment is received. While typically reported on Form 1099-OID, this income is still considered interest and must be included on your tax return, often on Schedule B.

Accrued interest on bonds bought or sold between interest payment dates also requires specific handling. When you buy a bond, you may pay the seller any interest that has accrued since the last payment date. This amount, though paid by you, is considered a return of capital and reduces your basis in the bond, not interest income. Conversely, when you sell a bond, any accrued interest received from the buyer should be reported as interest income.