Publication 550 |
2000 Tax Year |
How To Report Interest Income
Words you may need to know (see Glossary):
- Nominee
- Original issue discount (OID)
Generally, you report all of your taxable interest income on line
8a, Form 1040; line 8a, Form 1040A; or line 2, Form 1040EZ.
You cannot use Form 1040EZ if your interest income is more than
$400. Instead, you must use Form 1040A or Form 1040.
In addition, you cannot use Form 1040EZ if you must use Form 1040,
as described later, or if any of the statements listed under
Schedule B, later, are true.
Form 1040A.
You must complete Part I of Schedule 1 (Form 1040A) if you file
Form 1040A and any of the following are true.
- Your taxable interest income is more than $400.
- You are claiming the interest exclusion under the Education
Savings Bond Program (discussed earlier).
- You received interest from a seller-financed mortgage, and
the buyer used the property as a home.
- You received a Form 1099-INT for tax-exempt
interest.
- You received a Form 1099-INT for U.S. savings bond
interest that includes amounts you reported before 2000.
- You received, as a nominee, interest that actually belongs
to someone else.
- You received a Form 1099-INT for interest on frozen
deposits.
List each payer's name and the amount of interest income
received from each payer on line 1. If you received a Form
1099-INT or Form 1099-OID from a brokerage firm, list the
brokerage firm as the payer.
You cannot use Form 1040A if you must use Form 1040, as described
next.
Form 1040.
You must use Form 1040 instead of Form 1040A or Form 1040EZ if:
- You forfeited interest income because of the early
withdrawal of a time deposit,
- You received or paid accrued interest on securities
transferred between interest payment dates,
- You had a financial account in a foreign country, unless the
combined value of all foreign accounts was $10,000 or less during all
of 2000 or the accounts were with certain U.S. military banking
facilities,
- You acquired taxable bonds after 1987 and choose to reduce
interest income from the bonds by any amortizable bond premium
(discussed in chapter 3
under Bond Premium Amortization),
or
- You are reporting OID in an amount more or less than the
amount shown on Form 1099-OID.
Schedule B.
You must complete Part I of Schedule B (Form 1040) if you file Form
1040 and any of the following apply.
- Your taxable interest income is more than $400.
- You are claiming the interest exclusion under the Education
Savings Bond Program (discussed earlier).
- You had a foreign account.
- You received interest from a seller-financed mortgage, and
the buyer used the property as a home.
- You received a Form 1099-INT for tax-exempt interest.
- You received a Form 1099-INT for U.S. savings bond
interest that includes amounts you reported before 2000.
- You received, as a nominee, interest that actually belongs
to someone else.
- You received a Form 1099-INT for interest on frozen
deposits.
- You received a Form 1099-INT for interest on a bond
that you bought between interest payment dates.
- Statement (4) or (5) in the preceding list is true.
On line 1, Part I, list each payer's name and the amount
received from each. If you received a Form 1099-INT or Form
1099-OID from a brokerage firm, list the brokerage firm as the
payer.
Reporting tax-exempt interest.
Report the total of your tax-exempt interest (such as interest or
accrued OID on certain state and municipal bonds) and exempt-interest
dividends from a mutual fund on line 8b of Form 1040A or Form 1040. If
you file Form 1040EZ, print "TEI" in the space to the right of
the words "Form 1040EZ" on line 2. After "TEI," show the
amount of your tax-exempt interest, but do not add tax-exempt interest
in the total on Form 1040EZ, line 2.
You should not have received a Form 1099-INT for tax-exempt
interest. But if you did, you must fill in Schedule 1 (Form 1040A) or
Schedule B (Form 1040). See the Schedule 1 or Schedule B instructions
for how to report this. Be sure to also show this tax-exempt interest
on line 8b.
Do not report interest from an individual retirement arrangement
(IRA) as tax-exempt interest.
Form 1099-INT.
Your taxable interest income, except for interest from U.S. savings
bonds and Treasury obligations, is shown in box 1 of Form
1099-INT. Add this amount to any other taxable interest income
you received. You must report all of your taxable interest income even
if you do not receive a Form 1099-INT.
1099 INT
If you forfeited interest income because of the early withdrawal of
a time deposit, the deductible amount will be shown on Form
1099-INT, in box 2. See Penalty on early withdrawal of
savings, later.
Box 3 of Form 1099-INT shows the amount of interest income
you received from U.S. savings bonds, Treasury bills, Treasury notes,
and Treasury bonds. Add the amount shown in box 3 to any other taxable
interest income you received, unless part of the amount in box 3 was
previously included in your interest income. If part of the amount
shown in box 3 was previously included in your interest income, see
U.S. savings bond interest previously reported, later. If
you redeemed U.S. savings bonds you bought after 1989 and you paid
qualified educational expenses, see Interest excluded under the
Education Savings Bond Program, later.
Box 4 (federal income tax withheld) of Form 1099-INT will
contain an amount if you were subject to backup withholding. Report
the amount from box 4 on Form 1040EZ, line 7, on Form 1040A, line 36,
or on Form 1040, line 58.
Box 5 of Form 1099-INT shows investment expenses you may be
able to deduct as an itemized deduction. Chapter 3
discusses
investment expenses.
If there are entries in boxes 6 and 7 of Form 1099-INT, you
must file Form 1040. You may be able to take a credit for the amount
shown in box 6 (foreign tax paid) unless you deduct this amount on
Schedule A of Form 1040 as "Other taxes." To take the credit, you
may have to file
Form 1116, Foreign Tax
Credit. For more information, see Publication 514,
Foreign
Tax Credit for Individuals.
Form 1099-OID.
The taxable OID on a discounted obligation for the part of the year
you owned it is shown in box 1 of Form 1099-OID. Include this
amount in your total taxable interest income. But see Refiguring
OID shown on Form 1099-OID under Original Issue
Discount (OID), earlier.
You must report all taxable OID even if you do not receive a Form
1099-OID.
Box 2 of Form 1099-OID shows any taxable interest on the
obligation other than OID. Add this amount to the OID shown in box 1
and include the result in your total taxable income.
If you forfeited interest or principal on the obligation because of
an early withdrawal, the deductible amount will be shown in box 3. See
Penalty on early withdrawal of savings, later.
Box 4 of Form 1099-OID will contain an amount if you were
subject to backup withholding. Report the amount from box 4 on Form
1040EZ, line 7, on Form 1040A, line 36, or on Form 1040, line 58.
Box 7 of Form 1099-OID shows investment expenses you may be
able to deduct as an itemized deduction. Chapter 3
discusses
investment expenses.
U.S. savings bond interest previously reported.
If you received a Form 1099-INT for U.S. savings bond
interest, the form may show interest you do not have to report. See
Form 1099-INT for U.S. savings bond interest under
U.S. Savings Bonds, earlier.
On line 1, Part I of Schedule B (Form 1040), or on line 1, Part I
of Schedule 1 (Form 1040A), report all the interest shown on your Form
1099-INT. Then follow these steps.
- Several lines above line 2, enter a subtotal of all interest
listed on line 1.
- Below the subtotal write "U.S. Savings Bond Interest
Previously Reported" and enter amounts previously reported or
interest accrued before you received the bond.
- Subtract these amounts from the subtotal and enter the
result on line 2.
Example 1.
Your parents bought U.S. savings bonds for you when you were a
child. The bonds were issued in your name, and the interest on the
bonds was reported each year as it accrued. (See Choice to report
interest each year under U.S. Savings Bonds,
earlier.)
In April 2000, you redeemed one of the bonds -- a $1,000
series EE bond. The bond was originally issued in March 1982. When you
redeemed the bond, you received $1,826.40 for it.
The Form 1099-INT you received shows interest income of
$1,326.40. However, since the interest on your savings bonds was
reported yearly, you need only include the $53.20 interest that
accrued from January 2000 to April 2000.
You received no other taxable interest for 2000. You file Form
1040A.
On line 1, Part I of Schedule 1 (Form 1040A), enter your interest
income as shown on Form 1099-INT -- $1,326.40. (If you had
other taxable interest income, you would enter it next and then enter
a subtotal, as described earlier, before going to the next step.)
Several lines above line 2, write "U.S. Savings Bond Interest
Previously Reported" and enter $1,273.20 ($1,326.40 -
$53.20). Subtract $1,273.20 from $1,326.40 and write $53.20 on line 2.
Enter $53.20 on line 4 of Schedule 1 and on line 8a of Form 1040A.
Example 2.
Your uncle died and left you a $1,000 series EE bond. You redeem
the bond when it reaches maturity.
Your uncle paid $500 for the bond, so $500 of the amount you
receive upon redemption is interest income. Your uncle's executor
included in your uncle's final return $200 of the interest that had
accrued at the time of your uncle's death. You have to include only
$300 in your income.
The bank where you redeem the bond gives you a Form 1099-INT
showing interest income of $500. You also receive a Form
1099-INT showing taxable interest income of $300 from your
savings account.
You file Form 1040 and you complete Schedule B. On line 1 of
Schedule B, you list the $500 and $300 interest amounts shown on your
Forms 1099. Several lines above line 2, you put a subtotal of $800.
Below this subtotal, write "U.S. Savings Bond Interest Previously
Reported" and enter the $200 interest included in your uncle's
final return. Subtract the $200 from the subtotal and write $600 on
line 2. You then complete the rest of the form.
Worksheet for savings bonds distributed from a retirement or
profit-sharing plan.
If you cashed a savings bond acquired in a taxable distribution
from a retirement or profit-sharing plan (as discussed under U.S.
Savings Bonds, earlier), your interest income does not include
the interest accrued before the distribution and taxed as a
distribution from the plan.
Use the worksheet below to figure the amount you subtract from the
interest shown on Form 1099-INT.
A. |
Write the amount of cash received upon
redemption of the bond |
|
B. |
Write the value of the bond at the time of
distribution by the plan |
|
C. |
Subtract the amount on line B from the amount
on line A. This is the amount of interest accrued on the bond since it
was distributed by the plan |
|
D. |
Write the amount of interest shown on your Form
1099-INT |
|
E. |
Subtract the amount on line C from the amount
on line D. This is the amount you include in "U.S. Savings Bond
Interest Previously Reported" |
|
Your employer should tell you the value of each bond on the date it
was distributed.
Example.
You received a distribution of series EE U.S. savings bonds in
January 1999 from your company's profit-sharing plan.
In April 2000, you redeemed a $100 series EE bond that was part of
the distribution you received in 1999. You received $93.04 for the
bond. The company told you that the bond was bought in May 1989 for
$50 and that the value of the bond at the time of distribution in 1999
was $87.68. (This is the amount you included on your 1999 return.) The
bank gave you a Form 1099-INT that shows $43.04 interest (the
total interest from the date the bond was purchased to the date of
redemption). Since a part of the interest was included in your income
in 1999, you need to include in your 2000 income only the interest
that accrued after the bond was distributed to you.
On line 1 of Schedule B (Form 1040), include all the interest shown
on your Form 1099-INT as well as any other taxable interest
income you received. Several lines above line 2, put a subtotal of all
interest listed on line 1. Below this subtotal write "U.S. Savings
Bond Interest Previously Reported" and enter the amount figured on
the worksheet below.
A. |
Write the amount of cash received upon
redemption of the bond |
$93.04 |
B. |
Write the value of the bond at the time of
distribution by the plan |
87.68 |
C. |
Subtract the amount on line B from the amount
on line A. This is the amount of interest accrued on the bond since it
was distributed by the plan |
$5.36 |
D. |
Write the amount of interest shown on your Form
1099-INT |
$43.04 |
E. |
Subtract the amount on line C from the amount
on line D. This is the amount you include in "U.S. Savings Bond
Interest Previously Reported" |
$37.68 |
Subtract $37.68 from the subtotal and enter the result on line
2 of Schedule B. You then complete the rest of the form.
Interest excluded under the Education Savings Bond Program.
Use Form 8815, to figure your interest exclusion when
you redeem qualified savings bonds and pay qualified higher
educational expenses during the same year.
For more information on the exclusion and qualified higher
educational expenses, see the earlier discussion under Education
Savings Bond Program.
You must show your total interest from qualified savings bonds that
you cashed during 2000 on line 6 of Form 8815 and on line 1 of either
Schedule 1 (Form 1040A) or Schedule B (Form 1040). After completing
Form 8815, enter the result from line 14 (Form 8815) on line 3 of
Schedule 1 (Form 1040A) or line 3 of Schedule B (Form 1040).
Interest on seller-financed mortgage.
If an individual buys his or her home from you in a sale that you
finance, you must report the buyer's name, address, and social
security number on line 1 of Schedule 1 (Form 1040A) or line 1 of
Schedule B (Form 1040). If you do not, you may have to pay a $50
penalty. The buyer may have to pay a $50 penalty if he or she does not
give you this information.
You must also give your name, address, and social security number
(or employer identification number) to the buyer. If you do not, you
may have to pay a $50 penalty.
Frozen deposits.
Even if you receive a Form 1099-INT for interest on deposits
that you could not withdraw at the end of 2000, you must exclude these
amounts from your gross income. (See Interest income on frozen
deposits under Interest Income, earlier.) Do not
include this income on line 8a of Form 1040A or Form 1040. In Part I
of Schedule 1 (Form 1040A) or Part I of Schedule B (Form 1040),
include the full amount of interest shown on your Form 1099-INT
on line 1. Several lines above line 2, put a subtotal of all interest
income. Below this subtotal, write "Frozen Deposits" and show the
amount of interest that you are excluding. Subtract this amount from
the subtotal and write the result on line 2.
Accrued interest on bonds.
If you received a Form 1099-INT that reflects accrued
interest paid on a bond you bought between interest payment dates,
include the full amount shown as interest on the Form 1099-INT
on line 1, Part I of Schedule B (Form 1040). Then, below a subtotal of
all interest income listed, write "Accrued Interest" and the
amount of accrued interest. Subtract that amount from the interest
income subtotal. Enter the result on line 2 and also on Form 1040,
line 8a.
For more information, see Bonds Sold Between Interest Dates,
earlier.
Nominee distributions.
If you received a Form 1099-INT that includes an amount you
received as a nominee for the real owner, report the full amount shown
as interest on the Form 1099-INT on line 1, Part I of Schedule 1
(Form 1040A) or Schedule B (Form 1040). Then, below a subtotal of all
interest income listed, write "Nominee Distribution" and the
amount that actually belongs to someone else. Subtract that amount
from the interest income subtotal. Enter the result on line 2 and also
on line 8a of Form 1040A or 1040.
File Form 1099-INT with the IRS.
If you received interest as a nominee in 2000, you must file a Form
1099-INT for that interest with the IRS. Send Copy A of Form
1099-INT with a Form 1096, Annual Summary and
Transmittal of U.S. Information Returns, to your Internal
Revenue Service Center by February 28, 2001 (April 2, 2001 if filing
electronically). Give the actual owner of the interest Copy B of the
Form 1099-INT by January 31, 2001. On Form 1099-INT, you
should be listed as the "Payer." Prepare one Form 1099-INT
for each other owner and show that person as the "Recipient."
However, you do not have to file Form 1099-INT to show payments
for your spouse. For more information about the reporting requirements
and the penalties for failure to file (or furnish) certain information
returns, see the General Instructions for Forms 1099, 1098, 5498,
and W2-G.
Similar rules apply to OID reported to you as a nominee on Form
1099-OID. You must file a Form 1099-OID with Form 1096 to
show the proper distributions of the OID.
Example.
You and your sister have a joint savings account that paid $1,500
interest for 2000. Your sister deposited 30% of the funds in this
account, and you and she have agreed to share the yearly interest
income in proportion to the amount that each of you has invested.
Because your social security number was given to the bank, you
received a Form 1099-INT for 2000 that includes the interest
income earned belonging to your sister. This amount is $450, or 30% of
the total interest of $1,500.
You must give your sister a Form 1099-INT by January 31,
2001, showing $450 of interest income that she earned for 2000. You
must also send a copy of the nominee Form 1099-INT, along with
Form 1096, to the Internal Revenue Service Center by February 28,
2001. Show your own name, address, and social security number as that
of the "Payer" on the Form 1099-INT. Show your sister's
name, address, and social security number in the blocks provided for
identification of the "Recipient."
When you prepare your own federal income tax return, report the
total amount of interest income, $1,500, on line 1, Part I of Schedule
1 (Form 1040A) or line 1, Part I of Schedule B (Form 1040), and
identify the name of the bank that paid this interest. Show the amount
belonging to your sister, $450, as a subtraction from a subtotal of
all interest on Schedule 1 (or Schedule B) and identify this
subtraction as a "Nominee Distribution." (Your sister will report
the $450 of interest income on her own tax return, if she has to file
a return, and identify you as the payer of that amount.)
Original issue discount (OID) adjustment.
If you are reporting OID in an amount greater or less than the
amount shown on Form 1099-OID or other written statement (such
as for a REMIC regular interest), include the full amount of OID shown
on your Form 1099-OID or other statement on line 1, Part I of
Schedule B (Form 1040). If the OID to be reported is less than the
amount shown on Form 1099-OID, show the OID you do not have to
report below a subtotal of the interest and OID listed. Identify the
amount as "OID Adjustment" and subtract it from the subtotal. If
the OID to be reported is greater than the amount shown on Form
1099-OID, show the additional OID below the subtotal. Identify
the amount as "OID Adjustment" and add it to the subtotal.
Penalty on early withdrawal of savings.
If you withdraw funds from a time-savings or other deferred
interest account before maturity, you may be charged a penalty. The
Form 1099-INT or similar statement given to you by the financial
institution will show the total amount of interest in box 1 and will
show the penalty separately in box 2. You must include in income all
the interest shown in box 1. You can deduct the penalty on line 30,
Form 1040. Deduct the entire penalty even if it is more than your
interest income.
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