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IRS Tax Map 2008
Current IRS Tax Map

Rev. date: 11/2005

Interest Received


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Tele-Tax Topic 403

Most interest received that can be withdrawn, is taxable income. Examples of taxable interest are interest on bank accounts, money market accuracy certificates, and deposited insurance dividends. Interest on insurance dividends left on deposit with the Department of Veterans Affairs, however, is not taxable. Interest on Series EE and Series I U.S. Savings Bonds generally does not have to be reported until redeemed or they mature. Interest from these bonds may be excluded from income if used to pay for qualified higher educational expenses during the year and other requirements are met. Refer to 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 a bond, note, or other debt instrument was originally issued at a discount, part of the original issue discount may have to be included in income each year as interest. Refer to Publication 550 or Publication 1212, List of Original Issue Discount Instruments, for more information on original issue discount.
Report the amount of any tax exempt interest received during the tax year. This is an information reporting requirement only, and does not convert tax exempt interest to taxable interest. Form 1099-INT, Interest Income, Form 1099-OID, Original Issue Discount, or a similar statement should be received from each payer of interest of $10 or more, showing the taxable interest to be reported.
If you received interest as a nominee for the actual owner, you need to show that amount below a subtotal of all interest income listed on Form 1040 Schedule B or Form 1040A Schedule 1. 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 and a completed Form 1096, Annual Summary and Transmittal of U.S. Information Returns, with the Internal Revenue Service Center.
Excludable interest from redeemed U.S. savings bonds used to pay qualified higher education expenses is figured on Form 8815 and shown on Form 1040 Schedule B or Form 1040A Schedule 1.
If you receive taxable interest, you may have to pay estimated tax. For more information on interest income, refer to Publication 550.
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 backup withholding. Refer to Tax Topic 307 for information on backup withholding.