Generally, any interest that you receive or that is credited to your account and can be
withdrawn is taxable income. Examples of taxable interest are interest on bank accounts,
money market certificates, and deposited insurance dividends. Interest on veterans
insurance dividends is not taxable. Interest from U.S. savings bonds may be excluded from
income if you pay qualified higher educational expenses during the year and meet other
requirements. See Publication 550, Investment Income and
Expenses, for detailed information. Certain distributions commonly referred to as
dividends are actually interest. They include "dividends" on deposits or share
accounts in cooperative banks, credit unions, domestic savings and loan associations,
federal savings and loan associations, and mutual savings banks.
If you have a bond, note, or other long-term debt instrument that was originally issued
for a lower price than its redemption price at maturity, part of the original issue
discount must be included in your income each year as interest. See Publication
550 or Publication 1212 for more
information on original issue discount. You must show on your tax return the amount of any
tax-exempt interest you received during the tax year. This is an information-reporting
requirement and does not convert tax-exempt interest to taxable interest. You should
receive a Form 1099 I-N-T, Interest
Income; Form 1099 O-I-D; Original
Issue Discount; or a similar statement from each payer of interest of $10 or more,
showing the interest you must report. This information is often included on your year-end
account statement. Even if you do not receive a statement, you are still responsible for
reporting all taxable interest income.
If your taxable interest income is more than $400, be sure to show that income on
Schedule B of Form 1040, or on Schedule 1 of Form
1040A. You cannot file Form 1040EZ if your interest income
is more than $400. If your taxable interest income is $400 or less, you need to show only
that income on the front of Form 1040, 1040A, or Form 1040EZ.
If you received interest because you financed the sale of your home or other property
that the buyer uses as a personal residence, report it on Schedule B of Form 1040 or
Schedule 1 of Form 1040A. Follow the instructions for the form you are filing.
You must use Form 1040 to report interest in some situations. For example, you cannot
use Form 1040A or 1040EZ if you are reporting original issue discount in an amount that
differs from the amount shown on Form 1099 O-I-D, or if you received or paid accrued
interest on a bond that you transferred between payment dates. You must use Form 1040 or
Form 1040A if you received interest in your name as a nominee for the actual owner, or you
received a Form 1099 I-N-T for U.S. savings bond interest that includes amounts you
reported before 1997.
If you received interest as a nominee for the actual owner, you need to show that
amount separately below a subtotal of all interest income listed on Schedule B of Form
1040 or Schedule 1 of Form 1040A. Follow the form instructions for nominees. You must
prepare a Form 1099 I-N-T for the interest that is not yours and give Copy B to the actual
owner. You must also file a copy of the form and a completed Form 1096, Annual Summary and Transmittal
of U.S. Information Returns, with the Internal Revenue Service Center.
Excludable interest from U.S. savings bonds is figured on Form 8815 and then shown on Schedule B of Form
1040 or Schedule 1 of Form 1040A.
If you receive taxable interest, you may have to pay estimated tax. See Topic 355 for additional information on 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 to back-up withholding. See Topic 307 for information on back-up withholding.
For more information on interest income, order Publication 550
by calling 1-800-829-3676.
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