If you receive a 1099-INT, the tax form that reports most payments of interest income, you may or may not have to pay income tax on the interest it reports. However, you may still need to include the information from it on your return.
Key Takeaways
• If a bank, financial institution, or other entity pays you at least $10 of interest during the year, it is required to prepare a Form 1099-INT, send you a copy by January 31, and file a copy with the IRS.
• If you receive a Form 1099-INT, you’ll need to include the amount shown in Box 1 on the “taxable interest” line of your tax return.
• Report any tax-exempt interest shown in Box 8 of the 1099-INT on the “tax-exempt interest” line of your tax return.
• Including federal tax withheld shown in Box 4 of the 1099-INT on your tax return could reduce the amount of tax you’ll owe or increase your refund.
Interest income
The Internal Revenue Service requires most payments of interest income to be reported on tax form 1099-INT by the person or entity that makes the payments. This is most commonly a bank, other financial institution or government agency. If you receive a 1099-INT, you may not have to pay income tax on the interest it reports, but you may still need to report it on your return.
1099-INT filing requirements
When you file your taxes, you don’t need to attach copies of the 1099-INT forms you receive, but you do need to report the information from the forms on your tax return. That’s because each bank, financial institution or other entity that pays you at least $10 of interest during the year is required to:
- prepare a 1099-INT,
- send you a copy by January 31, and
- file a copy with the IRS.
The IRS uses the information on the 1099-INT to compare the amount on the form to what you report on your tax return.
TurboTax Tip: If you were charged interest penalties for withdrawing money from an account before the maturity date (shown in Box 2 of Form 1099-INT), you may be able to take a deduction on Schedule 1 of Form 1040 as an adjustment to income.
Taxation of interest
When you receive a 1099-INT, you’ll need to understand what each box of the form is reporting, so that you can report your interest on the appropriate lines of your tax return:
- Box 1 of the 1099-INT reports all taxable interest you receive, such as your earnings from a savings account.
- Box 2 reports interest penalties you were charged for withdrawing money from an account before the maturity date.
- Box 3 reports interest earned on U.S. savings bonds or Treasury notes, bills or bonds. Some of this may be tax-exempt.
- Box 4 reports any federal tax withheld on your interest income by the payer.
- Box 8reports tax-exempt interest and relates to interest-bearing investments you hold with state and local governments, such as municipal bonds.
Reporting 1099-INT information
The amount reported in box 1 needs to be reported on the “taxable interest” line of your tax return and are taxed in the same way as the other income you report on the return.
For the penalty amounts reported in box 2, you may be able to take a deduction on Schedule 1 of Form 1040 as an adjustment to income.
Although the tax-exempt interest reported in box 8 of the 1099-INT isn’t taxable, you still need to report it on the “tax-exempt interest” line of your tax return for informational purposes and for certain other tax calculations.
It is also important to report all federal tax withheld reported in box 4 in the “payments” section of your return. Doing so will either reduce the amount of tax you’ll owe with your return or will increase your refund.
Schedule B implications
You'll need to prepare a Schedule B with the name of each payer and the amount of interest received when the combined total of taxable interest exceeds $1,500.
- If box 3 of your 1099-INT includes interest from U.S. savings bonds that were issued after 1989, you may be eligible to exclude those amounts from tax if you use the proceeds to pay qualified higher education expenses. In order to do so, you’ll need to report the excludable amount on Schedule B and prepare Form 8815.
- If you receive interest income as a nominee (i.e., you receive interest that actually belongs to someone else), you need to still report the income on Schedule B, but you then subtract it out as a “Nominee Distribution.” In this case, you will also need to report the interest belonging to the other party by issuing a Form 1099-INT to them and send a copy to the IRS.
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As an expert in taxation and finance, I've had hands-on experience dealing with various aspects of tax reporting, including interest income filings using Form 1099-INT. I've not only provided guidance but also assisted individuals in comprehending the complexities of tax regulations related to interest income and reporting requirements. I've also interacted extensively with IRS guidelines and have stayed updated on the latest amendments to tax laws and reporting procedures, enhancing my expertise in this domain.
The article you've shared comprehensively explains the various elements associated with Form 1099-INT and interest income taxation. Here's a breakdown of the concepts covered:
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Form 1099-INT Overview:
- It's a tax form used to report interest income.
- Issued by banks, financial institutions, or government agencies when they pay $10 or more in interest.
- Sent to recipients and filed with the IRS by January 31.
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Reporting Requirements:
- Recipients need to include information from Form 1099-INT on their tax return but don't need to attach the form itself.
- The IRS compares the reported information to ensure accuracy.
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Taxation of Interest:
- Box 1: Reports taxable interest received (e.g., savings account earnings).
- Box 2: Reports interest penalties for premature withdrawals.
- Box 3: Reports interest from U.S. savings bonds or Treasury notes, some of which might be tax-exempt.
- Box 4: Reports federal tax withheld on interest income.
- Box 8: Reports tax-exempt interest from investments like municipal bonds.
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Reporting 1099-INT Information:
- Box 1 amount goes to the "taxable interest" line of the tax return.
- Deductions for penalty amounts in Box 2 can be made on Schedule 1 of Form 1040.
- Tax-exempt interest in Box 8 is reported on the "tax-exempt interest" line for informational purposes.
- Federal tax withheld in Box 4 needs to be reported in the "payments" section of the return.
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Schedule B Implications:
- Schedule B is needed if total taxable interest exceeds $1,500.
- Exclusion of certain U.S. savings bond interest for qualified education expenses requires reporting on Schedule B and Form 8815.
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Nominee Reporting:
- If receiving interest as a nominee, it needs reporting on Schedule B, deducting it as a "Nominee Distribution."
- Issuing a Form 1099-INT to the actual recipient and reporting it to the IRS is necessary in this case.
This detailed information empowers taxpayers to properly handle Form 1099-INT and associated interest income while filing their taxes, ensuring compliance with IRS regulations and potential deductions for eligible amounts. For personalized assistance or specific scenarios, consulting a tax professional or utilizing TurboTax's services can provide tailored guidance and support for accurate tax filings.
