What Is 1099-INT Box 11 and How Do You Report It?
Understand how the amount in 1099-INT Box 11 functions as an adjustment that reduces your taxable interest income, rather than adding to it.
Financial institutions and other payers must issue Form 1099-INT if they pay you at least $10 in interest during the year. This form details the interest income you’ve earned. Most boxes, like Box 1 for taxable interest, are easy to transfer to your tax return.
A frequent point of confusion, however, is Box 11, labeled “Bond premium.” Its purpose is not always obvious to those unfamiliar with bond investing. The amount in this box is not additional income but represents an adjustment related to the price you paid for a specific type of investment.
Understanding Bond Premium
The figure in Box 11 of Form 1099-INT represents the amount of bond premium allocated for the tax year. A bond premium occurs when an investor pays more for a bond than its face value, also known as par value. For instance, if a bond has a face value of $1,000 but is purchased for $1,050, the investor has paid a $50 premium. This situation arises when the bond’s stated interest rate is higher than current market rates for similar bonds.
Investors are willing to pay this premium to capture the higher interest payments offered by the existing bond. The premium paid is not lost money; instead, it is accounted for over the remaining life of the bond through a process called amortization. Amortization involves systematically spreading the cost of the premium over the time remaining until the bond matures.
The amount shown in Box 11 is the portion of the total premium that has been amortized for that single tax year. For example, if the $50 premium on the bond was amortized over five years, the annual amortization would be $10. This $10 figure is what the financial institution would report in Box 11.
Tax Treatment of Bond Premium
The amount in Box 11 for bond premium has a direct impact on your taxable income. The figure itself is not taxed; its primary function is to reduce the amount of taxable interest income you must report from the bond. To determine the correct amount of taxable interest, you subtract the bond premium in Box 11 from the total interest income shown in Box 1, which gives you the net taxable interest for that investment.
By reporting this amortized premium, you are making an “election to amortize” under tax regulations. This election, once made for a taxable bond, applies to all taxable bonds you own and acquire in the future, allowing for this annual reduction of interest income.
The alternative to this annual amortization is to wait until the bond is sold or matures. If you do not elect to amortize, you would report the full interest payment as income each year. The premium paid would then be realized as a capital loss at the end of the investment’s life. For most taxpayers who receive a Form 1099-INT with an amount in Box 11, the payer has already assumed the election to amortize has been made.
How to Report on Your Tax Return
The bond premium from Form 1099-INT is reported on Schedule B (Form 1040), Interest and Ordinary Dividends. You must file Schedule B if your total taxable interest income is over $1,500 or if you need to make adjustments for bond premium amortization.
First, list the name of the payer and the full amount of taxable interest from Box 1 of your Form 1099-INT on Part I of Schedule B. This entry should reflect the gross interest paid to you before any adjustments.
On the line directly below the interest income entry, write a description such as “Amortizable Bond Premium” or “ABP Adjustment.” In the corresponding amount column, enter the figure from Box 11 of your Form 1099-INT as a negative number.
When you sum the amounts in Part I of Schedule B, this negative entry will decrease the total interest from that specific 1099-INT. This ensures that only the net amount of interest is included in your total taxable interest income, which is then carried to your main Form 1040.