What Is 1099 Interest and How Do I Report It?
This guide clarifies how to report interest income from a 1099-INT, ensuring the information is correctly transferred to your tax return for compliance.
Receiving a Form 1099-INT in the mail signifies that you have earned interest income from a source like a bank or brokerage. This form is an official record for the Internal Revenue Service (IRS) detailing these payments, and understanding it is part of accurately preparing your annual tax return.
Understanding Form 1099-INT and Its Boxes
Form 1099-INT, titled “Interest Income,” is an information return used by payers to report interest payments made to individuals during the calendar year. Financial institutions like banks, credit unions, and brokerage firms are required to issue this form to any person to whom they paid at least $10 in interest. A copy is sent to both the recipient and the IRS, ensuring the government has a record of the income.
Form 1099-INT is organized into numbered boxes containing specific information about your interest earnings. Box 1, “Interest Income,” shows the total amount of taxable interest you were paid during the year. This figure includes interest from bank accounts, certificates of deposit (CDs), and similar sources. This is the primary amount that you will report as income on your tax return.
Box 3, “Interest on U.S. Savings Bonds and Treasury obligations,” reports interest earned from government debt instruments like Treasury bills, notes, and bonds. While this interest is subject to federal income tax, it is exempt from state and local income taxes, which can provide a tax benefit depending on where you live.
Note Box 4, “Federal income tax withheld.” If this box contains a number, the payer has already withheld and sent a portion of your interest earnings to the IRS on your behalf, which can occur due to backup withholding rules. The amount in Box 4 is a credit against your total tax liability and can reduce what you owe or increase your refund.
Box 8, “Tax-exempt interest,” reports interest that is not subject to federal income tax. This income comes from bonds issued by state or local governments, often called municipal bonds. While federally tax-exempt, this interest may still be taxable at the state or local level.
How to Report Interest Income on Your Tax Return
The information from Form 1099-INT must be transferred to your tax return, Form 1040. Taxable interest from Box 1 of the 1099-INT is reported on the designated line for taxable interest on Form 1040. This combines your interest earnings with your other income to calculate your total income.
If your total taxable interest income from all sources exceeds $1,500, you are required to file Schedule B, “Interest and Ordinary Dividends.” This schedule provides the IRS with an itemized list of the sources of your interest income.
In Part I of Schedule B, you must list the name of every payer that sent you a Form 1099-INT. Next to each payer’s name, you will write the corresponding amount of taxable interest you received from them.
After listing all individual interest payments on Schedule B, you will total them on the designated line. This total is then carried over to the taxable interest line on your Form 1040. Any tax-exempt interest from Box 8 of your 1099-INT forms should be reported on the specific line for tax-exempt interest on Form 1040.
Handling Special Circumstances
One common issue is earning interest but not receiving a Form 1099-INT, which can happen if the interest paid by an institution is less than the $10 reporting threshold. You are legally obligated to report all interest income you earn, regardless of whether you receive the form or how small the amount is.
If you receive a Form 1099-INT with incorrect information, such as an error in the amount of interest reported or in your personal details, do not change the numbers on your tax return. You must contact the payer who issued the form and request a corrected Form 1099-INT. The payer will file the corrected form with the IRS, ensuring all records are consistent.
Nominee interest occurs when you receive a Form 1099-INT that includes interest you received on behalf of someone else. First, you must report the full interest amount from the original 1099-INT on your Schedule B. Following that, you subtract the portion that belongs to the other person on a separate line, labeling it as a “Nominee Distribution.”
This process ensures you are only taxed on the interest that belongs to you. You are also required to file your own Form 1099-INT with the IRS and provide a copy to the actual owner of the interest, formally documenting the transfer of the income.