Tax season has started, and already, you should have gotten a lot of the forms you need in order to prepare your return. In particular, if you had a bank, credit union, brokerage account, or other investment that paid interest during 2018, then Form 1099-INT is one of the forms that you should already have received by now -- if your payer met the Jan. 31 deadline.
Form 1099-INT is short and relatively self-explanatory, but there's also a lot of opportunity for misunderstanding if you don't completely grasp all the information that the form provides. To help avoid any such misunderstandings, the guide below gives you the details on each of the boxes on the form so you can make sure you use the information correctly.
Basic information along the left
The entire left side of the form is taken up giving information about the paying entity as well as about you as the recipient of the interest income. Name, address, tax identification numbers, and account numbers are included. You'll also see boxes that will be checked if the institution has to meet requirements under the Foreign Account Tax Compliance Act, or if the filing is a correction that changes mistakes to a previously provided tax identification number.
Where you'll find most of your interest
For the most part, you can expect to find interest payments reflected in three boxes:
- Box 1 has most ordinary interest from bank savings accounts and CDs, as well as interest on corporate bonds and similar obligations.
- Box 3 includes all interest from obligations of the U.S. government, including Treasuries and savings bonds.
- Box 8 includes all interest from tax-exempt issuers including states, municipalities, and U.S. possessions. Certain municipal bonds that have a specified private activity are taxable for alternative minimum tax purposes, and interest from those obligations appears in Box 9 as well as being included in the Box 8 total.
Income in these three boxes gets taxed differently. Regular federal and state tax rates apply to Box 1 income, but Box 3 income is free of state income tax even though it's taxed normally at the federal level. Box 8 income is generally free of federal income tax, and you also don't have to pay state income taxes if the obligation in question was issued in your particular state.
Useful numbers that can offset your income or tax
Most of the other boxes provide information that you can use to take deductions or credits from what you have to pay in tax on your interest income. They include the following:
- If you took a withdrawal from a bank CD before it matured, you typically have to pay a penalty, and any amount you paid will show up in Box 2. You're allowed to deduct early-withdrawal penalties against your gross income on your tax return to reflect the fact that your financial institution kept part of the interest you had earned.
- Box 4 will show any federal income tax that your bank or broker withheld on your behalf. Be sure to count this amount under the payment section of your tax return in order to calculate your refund or amount owed correctly.
- Any deductible investment expenses that your financial institution incurred on your behalf will be listed in Box 5.
- Boxes 6 and 7 give vital information on foreign bonds. If you paid tax to the country where the bond was issued, then you can claim the foreign tax credit to try to recover some or all of that tax.
Other boxes you should know
Finally, some other boxes have specialized information that comes into play in a limited number of situations:
- Box 10 includes market discount amounts. For certain bonds that you bought for less than face value, you're required to include a portion of the discount each year as taxable interest, which is what shows up here.
- If you paid more than face value for a bond, then you're typically allowed to amortize a portion of the premium you paid each year and take it against income. This amount is listed in Box 11 for corporate bonds, while Box 12 includes such amounts for Treasuries and Box 13 has tax-exempt bond premium amounts.
- Box 14 includes bond information for tax-exempt bonds if the 1099-INT applies just to a single issuing entity.
- Finally, boxes 15 through 17 incorporate most of the same numbers but apply state tax rules to their treatment. You'll want to make sure to use these numbers rather than the federal ones in preparing your state tax return.
Do the right thing
The most important thing to understand about Form 1099-INT is that the IRS has the same information you have on the form. If you don't use the right numbers, then you'll potentially trigger an audit, so be sure that your final return matches up with what's on the 1099-INT.
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