Form 1099-INT Basics

The IRS Form 1099-INT (Interest Income) is used by banks, financial institutions, and other entities to report interest income paid to their customers during the tax year.

In general, if the account holder receives $10 or more in interest income, the payor must file Form 1099-INT and provide the recipient with a copy.

Sample Video Tutorial on Accrued Bond Interest

The topic covered in this video tutorial and blog post covers Form 1099-INT, where a taxpayer sold bond investments with accrued interest income between the bond payment dates.

Under U.S. federal tax rules, when a taxpayer sells bonds between interest payment dates, part of the sales price represents accrued interest income leading up to the date of the sale.

The accrued interest income on the bond is taxable to the seller and not the buyer. The bank reports this accrued interest to the seller as interest income in Box 1 of Form 1099-INT.

When a taxpayer buys or sells bonds between interest payment dates, they need to make adjustments for the amount of accrued interest attributed to the seller. If the adjustments are not made, the taxpayer can overstate the amount of taxable interest income.

On a taxpayer’s Form 1040 (US Individual Income Tax Return), they report the total Box 1 or Box 3 interest income on Schedule B (Interest & Dividends). The subtraction for accrued interest paid on bond purchases is separately stated on Schedule B.

Example Fact Pattern for Accrued Interest Paid on Bond Adjustments

In this example, the taxpayer bought treasuries between the interest payment dates. As a result, Form 1099-INT reports accrued interest income in Box 1, which is taxable to the previous seller of the bonds.

The taxpayer should only include in taxable income the amount of interest income accrued to him while holding the treasuries. The broker who prepared the Form 1099-INT also provided the taxpayer with supplemental information showing the accrued interest income included in the sale price when he purchased the treasuries.

The taxpayer reports $25,992 of U.S. treasury interest on Schedule B, and he included a separate line item subtracting the amount of accrued interest, which totaled $12,875 per the supplemental information.

Key Elements on Form 1099-INT for 2023

Box 1: Interest Income: The gross taxable interest income received during the calendar year.

Box 2: Early Withdrawal Penalty: Penalties charged to the account holder for the early withdrawal of certain types of savings accounts, such as certificates of deposit.

Box 3: Interest on U.S. Savings Bonds and Treasury Obligations: Taxable interest from U.S. Treasury bonds, bills, notes, and savings bonds. Federal interest income is subject to federal income taxes; however, it is generally exempt from state income taxes.

Box 4: Federal Income Tax Withheld: Any federal income tax withheld under the backup withholding rules under IRC Section 3406.

Box 6: Foreign Taxes Paid: If the amount of interest income includes any foreign source interest income that was subject to foreign withholding taxes, the foreign tax withheld is generally passed to the account holder and can be used as a foreign tax credit (FTC). FTC for individuals is reported on Form 1116 (Foreign Tax Credit).

Box 8: Tax-Exempt Interest: Interest income that is exempt from federal income tax, such as municipal bond interest income. Although the interest may be exempt from federal income taxes, it may be subject to state income taxes, depending upon your residency.

Box 9: Specified Private Activity Bonds Interest: The amount in Box 9 represents the portion of tax-exempt interest income that is private activity bond (PAB) interest income. PAB interest income is subject to special tax rules for alternative minimum tax (AMT) purposes.

Box 11: Bond Premium: The bond premium amortization on tax-exempt bonds.

Box 15: State: The state abbreviation in Box 15 indicates which state issued the municipal bonds reported in Box 8. This information is important for residents of states that impose income taxes.

Other Helpful Resources

Additional Information on Interest Income

Taxpayers can find more information on 1099-INT by visiting the form instructions and IRS Publication 550 (Investment Income and Expenses).