What Is 1099 Investment Income and How Do You Report It?

Investment income is the profit generated from your assets, such as stocks, bonds, or savings accounts. Financial institutions are required to report these earnings to you and the Internal Revenue Service (IRS) on a series of documents known as Form 1099. Receiving a 1099 indicates you have income that must be accounted for on your tax return. The form provides the specific amounts and types of income you received during the tax year.

Common 1099 Forms for Investment Income

Form 1099-INT

Form 1099-INT reports interest income. You will receive this form if you earned more than $10 in interest from a financial institution. Box 1 shows the total taxable interest paid to you from sources like savings accounts, checking accounts, and certificates of deposit. Box 3 details interest earned on U.S. Savings Bonds and Treasury securities. This interest is taxable on your federal return but is often exempt from state and local taxes.

Form 1099-DIV

Form 1099-DIV, Dividends and Distributions, reports payments from stocks or mutual funds. This form is sent if you received at least $10 in dividends. Box 1a shows your total ordinary dividends, while Box 1b identifies the portion that is “qualified.” Qualified dividends are taxed at lower rates than ordinary dividends. The form also reports capital gain distributions in Box 2a, which are profits from mutual funds that sold underlying securities.

Form 1099-B

Form 1099-B is generated when you sell securities like stocks or bonds through a broker. This form details the gross proceeds from these sales in Box 1d, the sale date in Box 1c, and the acquisition date in Box 1b. These dates determine if your gain or loss is short-term or long-term. Some 1099-B forms also report your cost basis (what you originally paid), which is needed to calculate your profit or loss.

Form 1099-OID

Form 1099-OID, Original Issue Discount, is used for debt instruments like bonds purchased for less than their face value. This difference between the purchase price and face value is the Original Issue Discount (OID). A portion of this discount is considered taxable income annually, even if you do not receive a cash payment. The taxable OID amount for the year is shown in Box 1.

Tax Treatment of Investment Income

The taxation of your investment income depends on its type. Interest income from Form 1099-INT is taxed at your ordinary income tax rates, the same progressive rates that apply to your wages. For the 2024 tax year, these rates can be as high as 37%.

Dividend income has different tax rules. Ordinary dividends from Form 1099-DIV are taxed at ordinary income rates. However, qualified dividends, shown in Box 1b, are taxed at the lower long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income. This preferential treatment makes qualified dividends more tax-efficient.

The sale of an investment, reported on Form 1099-B, results in a capital gain or loss, and the tax treatment depends on the holding period. A profit from an asset held for one year or less is a short-term capital gain, taxed at your ordinary income rate. A profit from an asset held for more than one year is a long-term capital gain, taxed at the more favorable 0%, 15%, or 20% rates.

Reporting Investment Income on Your Tax Return

You must report investment income correctly on your tax return. Information from your 1099 forms flows to specific schedules, which then feed into your main Form 1040, U.S. Individual Income Tax Return.

Interest from Form 1099-INT and ordinary dividends from Form 1099-DIV are reported on Schedule B, Interest and Ordinary Dividends. You must file Schedule B if your total interest or dividend income exceeds $1,500. The totals from this schedule are then transferred to your Form 1040.

Proceeds from security sales on Form 1099-B are reported on Schedule D, Capital Gains and Losses. First, you must list the details of each sale on Form 8949, Sales and Other Dispositions of Capital Assets. Using information from your 1099-B, you will calculate the gain or loss for each transaction on this form. The totals from Form 8949 are then carried over to Schedule D to summarize your annual capital gain and loss activity.

The Net Investment Income Tax

Some taxpayers are subject to an additional 3.8% tax on their investment income, known as the Net Investment Income Tax (NIIT). This tax only affects individuals, estates, and trusts with income above certain thresholds. You may be liable for the NIIT if your modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $250,000 for those married filing jointly.

The tax is calculated on either your net investment income or the amount your MAGI exceeds the threshold, whichever is less. Net investment income for the NIIT includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. This tax is a separate calculation from your regular income tax.

If you are subject to the NIIT, you must file Form 8960, Net Investment Income Tax, to calculate the amount you owe. The resulting tax liability is added to the “Total Tax” line on your Form 1040.