If a bond, note, or other debt instrument was
originally issued at a discount, part of the original issue discount may
have to be included in income each year as interest. Interest income from
Treasury bills, notes and bonds is subject to federal income tax, but is
exempt from all state and local income taxes. However, interest on some
bonds used to finance government operations and issued by a state, the
District of Columbia, or a U.S. possession is not taxable at the federal
level. Report the amount of any tax-exempt interest received during the tax
year. This is an information-reporting requirement only, and does not
convert tax-exempt interest to taxable interest. Form 1099-INT or a similar
statement should be received from each payer of interest of $10 or more,
showing the taxable or tax-exempt interest to be reported. Form 1099-OID,
Original Issue Discount, or a similar statement should be received from each
payer of taxable original issue discount of $10 or more, showing the amount
to be reported.
A nominee is someone who receives, in his or her
name, income or interest that actually belongs to another individual.
Generally, if you receive a Form 1099 for amounts that actually belong to
another person, you are considered a nominee recipient. It may be necessary
for you to file with the IRS and furnish to the other owners a Form 1099. If
you received interest as a nominee for the actual owner, you need to show
that amount below a subtotal of all interest income listed on Schedule B of
Form 1040 or Form 1040A. Follow the form instructions for nominees. You must
prepare a Form 1099-INT for the interest that is not yours and give Copy B
to the actual owner. You must also file a copy of the 1099-INT and a
completed Form 1096, Annual Summary and Transmittal of U.S. Information
Returns, with the Internal Revenue Service Center. If you receive taxable
interest, you may have to pay estimated tax. You must give the payer of your
interest income your correct social security number. If you do not, you may
be subject to a penalty and backup withholding.
Use Schedule B if you have over $1,500 in taxable
interest or ordinary dividends. You also will use schedule B to report
a financial interest in, or a signature authority over, a financial account
in a foreign country or you if you received a distribution from, or were a
grantor of, or transferor to, a foreign trust. If you received interest or
ordinary dividends as a nominee in any amount report this interest or
dividend amount that is in your name but does not belong to you. You report any amount of interest on your tax
report because interest income is normally taxable. Consequently, you
normally would file Schedule B if your interest
income is over $1,500.
Interest
Received
Most interest that is taxable income is interest
that you either receive or is credited to your account and can
be withdrawn without penalty. Interest that would be taxable
income is interest that you receive on bank accounts, money market accounts
and interest received on certificates of deposit. Taxable interest is any
interest received that is from certain distributions commonly referred to as
dividends or interest income from Treasury bill, notes and bonds. Interest
on insurance dividends left on deposit with the U.S. Department of Veterans
Affairs is is not taxable income interest. Most interest received that is
deemed taxable in any amount should be included on your tax return. A Form 1099-INT or a similar statement
should be
received from each payer of interest of $10 or more.
