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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