Generally, any interest that you receive or that is credited to your account and can be withdrawn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-Interest Income, Form 1099-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 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.
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, 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
for U.S. savings bond interest that includes amounts you reported before 1998.
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 INT 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. Select
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. Select
Topic 307 for information on back-up withholding.
Publications and forms may be downloaded from this site
or ordered by calling 1-800-829-3676.
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