What Are Schedule B Taxes and When Do You File?

IRS Schedule B, “Interest and Ordinary Dividends,” is a supplementary form attached to the standard Form 1040 individual tax return. Its purpose is to provide the Internal Revenue Service (IRS) with a detailed breakdown of a taxpayer’s interest and dividend income for the year. While many people earn some amount of interest from a savings account or dividends from an investment, not everyone is required to file this specific schedule. It is designed for individuals whose income from these sources exceeds certain thresholds or who have specific foreign financial dealings.

Filing Requirements for Schedule B

The primary factor determining the need to file Schedule B is the total amount of interest or ordinary dividend income received. If a taxpayer’s total taxable interest income for the year is more than $1,500, they are required to file Schedule B. Similarly, if their total ordinary dividend income exceeds $1,500, the form must be completed. These two thresholds are assessed independently; exceeding just one of them triggers the filing requirement.

Several other circumstances mandate filing Schedule B, regardless of the dollar amount of interest or dividends earned. These situations include:

• Receiving interest or dividends as a nominee, meaning the income was legally in your name but actually belongs to someone else.
• Having a financial interest in or signature authority over a financial account located in a foreign country, such as a bank or securities account.
• Acting as the grantor of, or a transferor to, a foreign trust.
• Receiving interest from a seller-financed mortgage where the buyer used the property as a personal residence.
• Excluding interest from Series EE or I U.S. savings bonds issued after 1989 that you cashed to pay for higher education expenses.

Information Needed to Complete Schedule B

Before filling out Schedule B, taxpayers must gather several financial documents. The most common sources for the required information are Form 1099-INT, “Interest Income,” and Form 1099-DIV, “Dividends and Distributions.” Financial institutions, such as banks and brokerage firms, issue these forms to individuals who have received income from them. It is important to collect every 1099 you receive to ensure all income is reported.

From Form 1099-INT, you will need the payer’s name and the amount of interest income. For Form 1099-DIV, you need the payer’s name and the total ordinary dividends. Another relevant document is Form 1099-OID, “Original Issue Discount,” which reports interest from certain bonds. Some reportable income may not be on a 1099 form, such as interest from seller-financed mortgages. For these situations, you must have the payer’s name and the exact amount of income received. For foreign account reporting, you will need to know the country where each account is held.

Completing the Parts of Schedule B

The process of filling out Schedule B is divided into three parts. It is a matter of transcribing the information gathered from your financial documents onto the correct lines of the form.

Part I – Interest

Part I is designated for reporting all taxable interest income. You must list the name of each payer and the corresponding amount of interest received from them. This includes interest from sources like savings accounts and certificates of deposit (CDs). After listing all individual interest payments, you will sum these amounts and enter the total, which is then carried over to your Form 1040.

Part II – Ordinary Dividends

Part II follows a similar procedure for ordinary dividend income. On line 5, you will list the name of each payer alongside the amount of ordinary dividends received. This includes dividends from stocks and mutual funds. Once all dividend sources are listed, you add them together and place the total on line 6, which is then transferred to your Form 1040.

Part III – Foreign Accounts and Trusts

Part III addresses foreign financial interests and consists of a series of yes-or-no questions. Question 7a asks if you had a financial interest in or signature authority over any financial accounts in a foreign country. If you answer “yes,” you must also identify the country where the accounts are located. An affirmative answer to this question may also require you to file a separate report, FinCEN Form 114, “Report of Foreign Bank and Financial Accounts (FBAR).” Question 8 asks if you received a distribution from, or were the grantor of, a foreign trust.