Form 1099-INT is a key document issued by banks, financial institutions, and other payers to report interest income earned by an individual or entity during a tax year. If you earn more than $10 in interest from a bank account, savings certificate, Treasury bond, or other interest-bearing financial product, you will likely receive a 1099-INT. Accurately understanding and reporting this form is crucial for meeting your tax obligations and avoiding penalties.
This blog offers a comprehensive explanation of Form 1099-INT, its structure, tax implications, and how to correctly incorporate it into your federal tax return.
1. What Is Form 1099-INT?
Form 1099-INT, titled “Interest Income,” is issued by payers of interest income—typically banks, credit unions, brokerage firms, and government agencies—to both the IRS and the taxpayer. It serves to report interest of $10 or more earned during the calendar year. Even if the amount is less than $10, it may still be reportable if backup withholding or foreign tax was withheld.
The IRS uses this form to ensure taxpayers properly report all sources of interest income and pay the correct amount of tax on it. Interest income is generally taxable and must be reported on your federal return, even if you don’t receive a physical copy of the form.
2. Who Receives Form 1099-INT?
You will receive a Form 1099-INT if:
- You earned more than $10 in interest from a bank or financial institution.
- Interest was paid on U.S. Savings Bonds or Treasury obligations.
- Foreign tax was withheld on your interest income.
- Backup withholding was applied to your account for any reason.
Form 1099-INT is typically provided by January 31 of the year following the tax year in which the interest was paid.
3. Understanding the Boxes on Form 1099-INT
Form 1099-INT includes multiple boxes that detail the types and sources of interest income, as well as withholdings. Here’s a breakdown of each key section:
- Box 1: Interest income — The total taxable interest you earned during the year.
- Box 2: Early withdrawal penalty — The amount of interest you forfeited due to early withdrawal from a time deposit like a CD. This is deductible on your tax return.
- Box 3: Interest on U.S. Savings Bonds and Treasury obligations — Generally taxable at the federal level but exempt from state and local tax.
- Box 4: Federal income tax withheld — Shows any backup withholding taken from your interest payments. Report this as tax paid.
- Box 5: Investment expenses — Mostly relevant to bondholders; rarely reported post-TCJA as most investment expense deductions were eliminated.
- Box 6: Foreign tax paid — Amount of foreign taxes withheld on interest income, which may be eligible for a foreign tax credit.
- Box 7: Foreign country or U.S. possession — Identifies the country where the foreign tax was paid.
- Box 8: Tax-exempt interest — Typically from municipal bonds; not taxed at the federal level but may be reportable.
- Box 9: Specified private activity bond interest — A subset of tax-exempt interest that may affect the AMT (Alternative Minimum Tax) calculation.
- Box 10: Market discount — Applies to bondholders and must be reported as income when the bond is sold or matures.
- Box 11: Bond premium — A reduction to interest income for bonds purchased at a premium. May be amortized and deducted over time.
- Box 12–13: Information related to bond acquisition premium or OID adjustments.
- Box 14–17: State tax information, including state tax withheld, state ID number, and state income.
4. Reporting Interest Income on Your Tax Return
Interest income reported on Form 1099-INT should be included on your federal income tax return. Here’s how it typically flows:
- Form 1040, Line 2b: Report total taxable interest (sum of Box 1 and Box 3).
- Schedule B (Form 1040): Required if your total interest income exceeds $1,500 or if you receive interest from foreign accounts or are the nominee for interest reported to another person.
- Form 1116: File to claim a credit for foreign tax paid (Box 6).
- Form 6251: If you have private activity bond interest (Box 9), this may affect your AMT liability.
Accurate reporting is critical as the IRS receives a copy of the 1099-INT directly from the payer.
5. Tax-Exempt vs. Taxable Interest
Not all interest income is taxable. Interest on municipal bonds (reported in Box 8) is generally tax-exempt at the federal level, though it may still be subject to state income tax.
However, some municipal bonds fall under the category of private activity bonds. The interest from these bonds (Box 9) is tax-exempt for regular tax but must be included when calculating AMT.
6. Early Withdrawal Penalties
Box 2 shows any penalties incurred due to the early withdrawal of funds from time-based accounts like certificates of deposit (CDs). These penalties are deductible as an adjustment to income on Schedule 1 (Form 1040), Line 18, reducing your adjusted gross income (AGI).
7. Backup Withholding
If you did not provide a valid Taxpayer Identification Number (TIN) to your financial institution or were subject to IRS withholding due to underreporting, you may see federal tax withheld in Box 4. This amount should be added to your total federal income tax withheld on Form 1040, Line 25b.
Ensure you report this correctly to get credit for taxes already withheld.
8. Foreign Tax Paid on Interest Income
If you received interest income from foreign banks or investments and foreign tax was withheld (Box 6), you may be eligible for the foreign tax credit. Use Form 1116 to claim the credit, or Schedule A if itemizing and electing to treat it as a deduction instead.
In most cases, claiming a tax credit offers a greater tax benefit than a deduction.
9. Nominee Interest and Joint Accounts
If you receive a 1099-INT that includes interest that actually belongs to another person (e.g., joint bank account), you must:
- Report the full amount on your return.
- Subtract the portion belonging to the other person.
- Provide them with a nominee 1099-INT and report it using Form 1096 if required.
Additionally, the IRS requires you to indicate nominee interest on Schedule B, making this a vital compliance step in shared financial arrangements.
10. What If You Don’t Receive Form 1099-INT?
Even if your financial institution doesn’t issue a 1099-INT (e.g., you earned less than $10), you are still required to report all interest income. Always review your year-end account statements for unreported earnings, especially if you are close to the $10 threshold or if withholding occurred.
Failure to report interest income—whether or not a form was received—can result in IRS penalties, audits, or additional taxes owed.
11. Common Mistakes to Avoid
- Omitting interest income because you didn’t receive a physical form.
- Not reporting tax-exempt interest even though it affects other tax calculations.
- Ignoring backup withholding amounts or early withdrawal penalties.
- Failing to file Schedule B when required.
Using reputable tax software or working with a tax professional can help avoid these mistakes.
12. When to Consult a Tax Professional
Consider seeking professional tax help if you:
- Earn a significant amount of interest income from multiple sources.
- Receive interest from foreign accounts or investments.
- Are subject to AMT due to private activity bond interest.
- Need to issue nominee 1099-INTs for shared accounts.
A tax expert can ensure you comply with IRS rules while minimizing your tax liability.
Conclusion
Form 1099-INT is a critical document for taxpayers who earn interest income. Whether from savings accounts, Treasury bonds, or foreign investments, understanding how to read and report the information is essential for accurate and compliant tax filing.
Always review each box of your 1099-INT, confirm its accuracy with your own records, and report the amounts properly on your tax return. Even small amounts of unreported interest can raise red flags with the IRS. By staying informed and meticulous, you can avoid tax complications and confidently file your return.
