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Publication 17

Chapter 7
Interest Income(p56)

For Use in Tax Year 2014


Foreign-source income.(p56)
If you are a U.S. citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer.
This chapter discusses the following topics.
In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Exceptions to this rule are discussed later in this chapter.
You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. See Money borrowed to invest in certificate of deposit, later, and chapter 28.


Useful items

You may want to see:

 537  Installment Sales
 550  Investment Income and Expenses
 1212 Guide to Original Issue Discount (OID) Instruments
Form (and Instructions)
 Schedule A (Form 1040) : Itemized Deductions
 Schedule B (Form 1040A or 1040) : Interest and Ordinary Dividends
 8615: Tax for Certain Children Who Have Unearned Income
 8814: Parents' Election To Report Child's Interest and Dividends
 8815: Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
 8818: Optional Form To Record Redemption of Series EE and I U.S. Savings Bonds Issued After 1989

General Information(p56)

For Use in Tax Year 2014
A few items of general interest are covered here.
Where Refund
Recordkeeping. You should keep a list showing sources and interest amounts received during the year. Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records.

Tax on unearned income of certain children.(p56)

For Use in Tax Year 2014
Part of a child's 2014 unearned income may be taxed at the parent's tax rate. If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate.
Some parents can choose to include the child's interest and dividends on the parent's return. If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.
For more information about the tax on unearned income of children and the parents' election, see chapter 31.

Beneficiary of an estate or trust.(p56)

For Use in Tax Year 2014
Interest you receive as a beneficiary of an estate or trust is generally taxable income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc., from the fiduciary. Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040.

Social security number (SSN).(p56)

For Use in Tax Year 2014
You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. This includes payers of interest. If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty.
SSN for joint account.(p56)
If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. (For information on who owns the funds in a joint account, see Joint accounts, later.) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. This is because only one name and SSN can be shown on Form 1099.
These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN.
Custodian account for your child.(p57)
If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian.
Penalty for failure to supply SSN.(p57)
If you do not give your SSN to the payer of interest, you may have to pay a penalty. See Failure to supply SSN under Penalties in chapter 1. Backup withholding also may apply.

Backup withholding.(p57)

For Use in Tax Year 2014
Your interest income is generally not subject to regular withholding. However, it may be subject to backup withholding to ensure that income tax is collected on the income. Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate.
Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. For more information, see Backup Withholding in chapter 4.
Reporting backup withholding.(p57)
If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. The Form 1099-INT will show any backup withholding as "Federal income tax withheld."

Joint accounts.(p57)

For Use in Tax Year 2014
If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law.

Income from property given to a child.(p57)

For Use in Tax Year 2014
Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property.
Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation.
Savings account with parent as trustee.(p57)
Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true.

Form 1099-INT.(p57)

For Use in Tax Year 2014
Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. This form shows you the interest you received during the year. Keep this form for your records. You do not have to attach it to your tax return.
Report on your tax return the total interest income you receive for the tax year. See the instructions to Form 1099-INT to see whether you need to adjust any of the amounts reported to you.
Interest not reported on Form 1099-INT.(p57)
Even if you do not receive Form 1099-INT, you must still report all of your interest income. For example, you may receive distributive shares of interest from partnerships or S corporations. This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc., or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc.
Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf.
If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions.
Incorrect amount.(p57)
If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. The new Form 1099-INT you receive will be marked "Corrected."

Form 1099-OID.(p57)

For Use in Tax Year 2014
Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. For more information about amounts shown on this form, see Original Issue Discount (OID), later in this chapter.

Exempt-interest dividends.(p57)

For Use in Tax Year 2014
Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. (However, see Information reporting requirement, next.) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. You do not reduce your basis for distributions that are exempt-interest dividends.
Information reporting requirement.(p57)
Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. This is an information reporting requirement and does not change the exempt-interest dividends into taxable income.
Note.Exempt interest on specified private activity bonds may be subject to the alternative minimum tax. See Alternative Minimum Tax (AMT) in chapter 30 for more information. Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations.

Interest on VA dividends.(p57)

For Use in Tax Year 2014
Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies.

Individual retirement arrangements (IRAs).(p57)

For Use in Tax Year 2014
Interest on a Roth IRA generally is not taxable. Interest on a traditional IRA is tax deferred. You generally do not include it in your income until you make withdrawals from the IRA. See chapter 17.