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Publication 550
taxmap/pubs/p550-005.htm#en_us_publink100010042

How To Report
Interest Income(p17)

rule

Words you may need to know (see Glossary)

Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2.
You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Instead, you must use Form 1040A or Form 1040.
In addition, you cannot use Form 1040EZ if you must use Form 1040, as described later, or if any of the statements listed under Schedule B (Form 1040A or 1040), later, are true.
taxmap/pubs/p550-005.htm#en_us_publink100010043

Form 1040A.(p17)

rule
You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true.
  1. Your taxable interest income is more than $1,500.
  2. You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier).
  3. You received interest from a seller-financed mortgage, and the buyer used the property as a home.
  4. You received a Form 1099-INT for U.S. savings bond interest that includes amounts you reported before 2012.
  5. You received, as a nominee, interest that actually belongs to someone else.
  6. You received a Form 1099-INT for interest on frozen deposits.
  7. You are reporting OID in an amount less than the amount shown on Form 1099-OID.
  8. You received a Form 1099-INT for interest on a bond you bought between interest payment dates.
  9. You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (discussed in chapter 3 under Bond Premium Amortization).
List each payer's name and the amount of interest income received from each payer on line 1. If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer.
You cannot use Form 1040A if you must use Form 1040, as described next.
taxmap/pubs/p550-005.htm#en_us_publink100010044

Form 1040.(p17)

rule
You must use Form 1040 instead of Form 1040A or Form 1040EZ if:
  1. You forfeited interest income because of the early withdrawal of a time deposit;
  2. You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (discussed in chapter 3 under Bond Premium Amortization); or
  3. You received tax-exempt interest from private activity bonds issued after August 7, 1986.
taxmap/pubs/p550-005.htm#en_us_publink100010045
Schedule B (Form 1040A or 1040).(p17)
You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply.
  1. Your taxable interest income is more than $1,500.
  2. You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier).
  3. You received interest from a seller-financed mortgage, and the buyer used the property as a home.
  4. You received a Form 1099-INT for U.S. savings bond interest that includes amounts you reported before 2012.
  5. You received, as a nominee, interest that actually belongs to someone else.
  6. You received a Form 1099-INT for interest on frozen deposits.
  7. You received a Form 1099-INT for interest on a bond you bought between interest payment dates.
  8. You are reporting OID in an amount less than the amount shown on Form 1099-OID.
  9. Statement (2) in the preceding list is true.
In Part I, line 1, list each payer's name and the amount received from each. If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer.
taxmap/pubs/p550-005.htm#en_us_publink100010046

Reporting tax-exempt interest.(p18)

rule
Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Add these amounts to any other tax-exempt interest you received. Report the total on line 8b of Form 1040A or Form 1040. If you file Form 1040EZ, enter "TEI" and the amount in the space to the left of line 2. Do not add tax-exempt interest in the total on Form 1040EZ, line 2.
Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10.
EIC
Do not report interest from an individual retirement arrangement (IRA) as tax-exempt interest.
taxmap/pubs/p550-005.htm#en_us_publink100010048

Form 1099-INT.(p18)

rule
Your taxable interest income, except for interest from U.S. savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Add this amount to any other taxable interest income you received. You must report all your taxable interest income even if you do not receive a Form 1099-INT. Contact your financial institution if you do not receive a Form 1099-INT by February 15. Your identifying number may be truncated on any paper Form 1099-INT you receive for 2012.
If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. See Penalty on early withdrawal of savings, later.
Box 3 of Form 1099-INT shows the interest income you received from U.S. savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. If part of the amount shown in box 3 was previously included in your interest income, see U.S. savings bond interest previously reported, later. If you redeemed U.S. savings bonds you bought after 1989 and you paid qualified educational expenses, see Interest excluded under the Education Savings Bond Program, later.
Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or on Form 1040, line 62.
Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Chapter 3 discusses investment expenses.
If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). To take the credit, you may have to file Form 1116, Foreign Tax Credit. For more information, see Publication 514, Foreign Tax Credit for Individuals.
taxmap/pubs/p550-005.htm#en_us_publink100010050

Form 1099-OID.(p18)

rule
The taxable OID on a discounted obligation for the part of the year you owned it is shown in box 1 of Form 1099-OID. Include this amount in your total taxable interest income. But see Refiguring OID shown on Form 1099-OID under Original Issue Discount (OID), earlier. Your identifying number may be truncated on any paper Form 1099-OID you receive for 2012.
You must report all taxable OID even if you do not receive a Form 1099-OID.
Box 2 of Form 1099-OID shows any taxable interest on the obligation other than OID. Add this amount to the OID shown in box 1 and include the result in your total taxable income.
If you forfeited interest or principal on the obligation because of an early withdrawal, the deductible amount will be shown in box 3. See Penalty on early withdrawal of savings, later.
Box 4 of Form 1099-OID will contain an amount if you were subject to backup withholding. Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or on Form 1040, line 62.
Box 7 of Form 1099-OID shows investment expenses you may be able to deduct as an itemized deduction. Chapter 3 discusses investment expenses.
taxmap/pubs/p550-005.htm#en_us_publink100010051

U.S. savings bond interest previously reported.(p18)

rule
If you received a Form 1099-INT for U.S. savings bond interest, the form may show interest you do not have to report. See Form 1099-INT for U.S. savings bond interest under U.S. Savings Bonds, earlier.
On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Then follow these steps.
  1. Several lines above line 2, enter a subtotal of all interest listed on line 1.
  2. Below the subtotal enter "U.S. Savings Bond Interest Previously Reported" and enter amounts previously reported or interest accrued before you received the bond.
  3. Subtract these amounts from the subtotal and enter the result on line 2.
taxmap/pubs/p550-005.htm#en_us_publink100010052

Example 1.(p18)

Your parents bought U.S. savings bonds for you when you were a child. The bonds were issued in your name, and the interest on the bonds was reported each year as it accrued. (See Choice to report interest each year under U.S. Savings Bonds, earlier.)
In March 2012, you redeemed one of the bonds — a $1,000 series EE bond. The bond was originally issued in March 1993. When you redeemed the bond, you received $1,061.60 for it.
The Form 1099-INT you received shows interest income of $561.60. However, since the interest on your savings bonds was reported yearly, you need only include the $10.80 interest that accrued from January 2012 to March 2012.
You received no other taxable interest for 2012. You file Form 1040A.
On Schedule B (Form 1040A or 1040), Part I, line 1, enter your interest income as shown on Form 1099-INT — $561.60. (If you had other taxable interest income, you would enter it next and then enter a subtotal, as described earlier, before going to the next step.) Several lines above line 2, enter "U.S. Savings Bond Interest Previously Reported" and enter $550.80 ($561.60 − $10.80). Subtract $550.80 from $561.60 and enter $10.80 on line 2. Enter $10.80 on Schedule B (Form 1040A or 1040), line 4, and on Form 1040A, line 8a.
taxmap/pubs/p550-005.htm#en_us_publink100010053

Example 2.(p18)

Your uncle died and left you a $1,000 series EE bond. You redeem the bond when it reaches maturity.
Your uncle paid $500 for the bond, so $500 of the amount you receive upon redemption is interest income. Your uncle's executor included in your uncle's final return $200 of the interest that had accrued at the time of your uncle's death. You have to include only $300 in your income.
The bank where you redeem the bond gives you a Form 1099-INT showing interest income of $500. You also receive a Form 1099-INT showing taxable interest income of $300 from your savings account.
You file Form 1040 and complete Schedule B (Form 1040A or 1040). On line 1 of Schedule B (Form 1040A or 1040), you list the $500 and $300 interest amounts shown on your Forms 1099. Several lines above line 2, you put a subtotal of $800. Below this subtotal, enter "U.S. Savings Bond Interest Previously Reported" and enter the $200 interest included in your uncle's final return. Subtract the $200 from the subtotal and enter $600 on line 2. You then complete the rest of the form.
taxmap/pubs/p550-005.htm#en_us_publink100010054
Worksheet for savings bonds distributed from a retirement or profit-sharing plan.(p18)
If you cashed a savings bond acquired in a taxable distribution from a retirement or profit-sharing plan (as discussed under U.S. Savings Bonds, earlier), your interest income does not include the interest accrued before the distribution and taxed as a distribution from the plan.
Pencil
Use the worksheet below to figure the amount you subtract from the interest shown on Form 1099-INT.
A. Enter the amount of cash received upon redemption of the bond
   
B. Enter the value of the bond at the time of distribution by the plan
   
C. Subtract the amount on line B from the amount on line A. This is the amount of interest accrued on the bond since it was distributed by the plan
   
D. Enter the amount of interest shown on your Form 1099-INT
   
E. Subtract the amount on line C from the amount on line D. This is the amount you include in "U.S. Savings Bond Interest Previously Reported"
Your employer should tell you the value of each bond on the date it was distributed.
taxmap/pubs/p550-005.htm#en_us_publink100010056

Example.(p19)

You received a distribution of series EE U.S. savings bonds in December 2009 from your company's profit-sharing plan.
In March 2012, you redeemed a $100 series EE bond that was part of the distribution you received in 2009. You received $89.44 for the bond the company bought in May 1995. The value of the bond at the time of distribution in 2009 was $86.28. (This is the amount you included on your 2009 return.) The bank gave you a Form 1099-INT that shows $39.44 interest (the total interest from the date the bond was purchased to the date of redemption). Since a part of the interest was included in your income in 2009, you need to include in your 2012 income only the interest that accrued after the bond was distributed to you.
On Schedule B (Form 1040A or 1040), line 1, include all the interest shown on your Form 1099-INT as well as any other taxable interest income you received. Several lines above line 2, put a subtotal of all interest listed on line 1. Below this subtotal enter "U.S. Savings Bond Interest Previously Reported" and enter the amount figured on the worksheet below.
A. Enter the amount of cash received upon redemption of the bond $89.44
B. Enter the value of the bond at the time of distribution by the plan $86.28
C. Subtract the amount on line B from the amount on line A. This is the amount of interest accrued on the bond since it was distributed by the plan $3.16
D. Enter the amount of interest shown on your Form 1099-INT $39.44
E. Subtract the amount on line C from the amount on line D. This is the amount you include in "U.S. Savings Bond Interest Previously Reported"$36.28
Subtract $36.28 from the subtotal and enter the result on Schedule B (Form 1040A or 1040), line 2. You then complete the rest of the form.
taxmap/pubs/p550-005.htm#en_us_publink100010057

Interest excluded under the Education Savings Bond Program.(p19)

rule
Use Form 8815 to figure your interest exclusion when you redeem qualified savings bonds and pay qualified higher educational expenses during the same year.
For more information on the exclusion and qualified higher educational expenses, see the earlier discussion under Education Savings Bond Program.
You must show your total interest from qualified savings bonds you cashed during 2012 on Form 8815, line 6, and on Schedule B (Form 1040A or 1040). After completing Form 8815, enter the result from line 14 (Form 8815) on Schedule B (Form 1040A or 1040), line 3.
taxmap/pubs/p550-005.htm#en_us_publink100010058

Interest on seller-financed mortgage.(p19)

rule
If an individual buys his or her home from you in a sale that you finance, you must report the amount of interest received on Schedule B (Form 1040A or 1040), line 1. Include on line 1 the buyer's name, address, and SSN. If you do not, you may have to pay a $50 penalty. The buyer may have to pay a $50 penalty if he or she does not give you this information.
You must also give your name, address, and SSN (or employer identification number) to the buyer. If you do not, you may have to pay a $50 penalty.
taxmap/pubs/p550-005.htm#en_us_publink100010059

Frozen deposits.(p19)

rule
Even if you receive a Form 1099-INT for interest on deposits that you could not withdraw at the end of 2012, you must exclude these amounts from your gross income. (See Interest income on frozen deposits under Interest Income, earlier.) Do not include this income on line 8a of Form 1040A or 1040. On Schedule B (Form 1040A or 1040), Part I, include the full amount of interest shown on your Form 1099-INT on line 1. Several lines above line 2, put a subtotal of all interest income. Below this subtotal, enter "Frozen Deposits" and show the amount of interest that you are excluding. Subtract this amount from the subtotal and enter the result on line 2.
taxmap/pubs/p550-005.htm#en_us_publink100010060

Accrued interest on bonds.(p19)

rule
If you received a Form 1099-INT that reflects accrued interest paid on a bond you bought between interest payment dates, include the full amount shown as interest on the Form 1099-INT on Schedule B (Form 1040A or 1040), Part I, line 1. Then, below a subtotal of all interest income listed, enter "Accrued Interest" and the amount of accrued interest you paid to the seller. That amount is taxable to the seller, not you. Subtract that amount from the interest income subtotal. Enter the result on line 2 and also on line 8a of Form 1040A or 1040.
For more information, see Bonds Sold Between Interest Dates, earlier.
taxmap/pubs/p550-005.htm#en_us_publink100010061

Nominee distributions.(p19)

rule
If you received a Form 1099-INT that includes an amount you received as a nominee for the real owner, report the full amount shown as interest on the Form 1099-INT on Part I, line 1 of Schedule B (Form 1040A or 1040). Then, below a subtotal of all interest income listed, enter "Nominee Distribution" and the amount that actually belongs to someone else. Subtract that amount from the interest income subtotal. Enter the result on line 2 and also on line 8a of Form 1040A or 1040.
taxmap/pubs/p550-005.htm#en_us_publink100010062
File Form 1099-INT with the IRS.(p19)
If you received interest as a nominee in 2012, you must file a Form 1099-INT for that interest with the IRS. Send Copy A of Form 1099-INT with a Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to your Internal Revenue Service Center by February 28, 2013 (April 1, 2013, if you file Form 1099-INT electronically). Give the actual owner of the interest Copy B of the Form 1099-INT by January 31, 2013. On Form 1099-INT, you should be listed as the "Payer." Prepare one Form 1099-INT for each other owner and show that person as the "Recipient." However, you do not have to file Form 1099-INT to show payments for your spouse. For more information about the reporting requirements and the penalties for failure to file (or furnish) certain information returns, see the General Instructions for Certain Information Returns.
Similar rules apply to OID reported to you as a nominee on Form 1099-OID. You must file a Form 1099-OID with Form 1096 to show the proper distributions of the OID.
taxmap/pubs/p550-005.htm#en_us_publink100010063

Example.(p19)

You and your sister have a joint savings account that paid $1,500 interest for 2012. Your sister deposited 30% of the funds in this account, and you and she have agreed to share the yearly interest income in proportion to the amount each of you has invested. Because your SSN was given to the bank, you received a Form 1099-INT for 2012 that includes the interest income earned belonging to your sister. This amount is $450, or 30% of the total interest of $1,500.
You must give your sister a Form 1099-INT by January 31, 2013, showing $450 of interest income she earned for 2012. You must also send a copy of the nominee Form 1099-INT, along with Form 1096, to the Internal Revenue Service Center by February 28, 2013 (April 1, 2013, if you file Form 1099-INT electronically). Show your own name, address, and SSN as that of the "Payer" on the Form 1099-INT. Show your sister's name, address, and SSN in the blocks provided for identification of the "Recipient."
When you prepare your own federal income tax return, report the total amount of interest income, $1,500, on Schedule B (Form 1040A or 1040), Part I, line 1, and identify the name of the bank that paid this interest. Show the amount belonging to your sister, $450, as a subtraction from a subtotal of all interest on Schedule B (Form 1040A or 1040) and identify this subtraction as a "Nominee Distribution." (Your sister will report the $450 of interest income on her own tax return, if she has to file a return, and identify you as the payer of that amount.)
taxmap/pubs/p550-005.htm#en_us_publink100010064

Original issue discount (OID) adjustment.(p19)

rule
If you are reporting OID in an amount less than the amount shown on Form 1099-OID or other written statement (such as for a REMIC regular interest), include the full amount of OID shown on your Form 1099-OID or other statement on Schedule B (Form 1040A or 1040), Part I, line 1. Show OID you do not have to report below a subtotal of the interest and OID listed. Identify the amount as "OID Adjustment" and subtract it from the subtotal.
taxmap/pubs/p550-005.htm#en_us_publink100010065

Penalty on early withdrawal of savings.(p20)

rule
If you withdraw funds from a certificate of deposit or other deferred interest account before maturity, you may be charged a penalty. The Form 1099-INT or similar statement given to you by the financial institution will show the total amount of interest in box 1 and will show the penalty separately in box 2. You must include in income all interest shown in box 1. You can deduct the penalty on Form 1040, line 30. Deduct the entire penalty even if it is more than your interest income.