Form 1099-INT: Interest Income Definition

Form 1099-INT is the IRS tax form used to report interest income. The form is issued by all payers of interest income to investors at year end and includes a breakdown of all types of interest income and related expenses. Payers must issue Form 1099-INTs for any party to whom they paid at least $10 of interest during the year.

Brokerage firms, banks, mutual funds, and other financial institutions are required to file Form 1099-INT on interest over $10 paid during the year. The form must be reported to the IRS and sent to each interest recipient by January 31.

When taxpayers borrow money, the lenders charge them interest on the loans. This interest represents a cost of borrowing to the borrower who can be an individual, business, or a government agency. Individual and businesses can borrow money by taking out loans from a bank. Likewise, businesses and federal and municipal governments can borrow money by issuing bonds to investors. Financial institutions pay interest to account holders as compensation for the bank’s use of the deposited funds. The interest received by the investors or lenders is taxable income and must be reported to the Internal Revenue Service (IRS).

Information in Form 1099-INT includes:

• name and address of payer
• name and address of recipient
• payer’s and recipient’s identification numbers
• amount of interest paid ($10 or more)
• amount of tax-exempt interest, such as that on municipal bonds
• amount of interest paid on U.S. savings bonds and Treasury obligations, some of which may be tax-exempt
• foreign tax paid
• market discount
• bond premium
• bond premium on tax-exempt bond
• federal income tax withheld
• state tax withheld

IRS Form 1099-INT must be filed for each person:

1. To whom you paid amounts reportable in Boxes 1, 3, and 8 of at least $10 (or at least $600 of interest paid in the course of your trade or business described in the instructions for Box 1, Interest Income)

2. For whom you withheld and paid any foreign tax on interest

3. From whom you withheld (and did not refund) any federal income tax under the backup withholding rules regardless of the amount of the payment

Interest paid that must be reported on Form 1099-INT will include interest on bank deposits, accumulated dividends paid by a life insurance company, indebtedness (including bonds, debentures, notes, and certificates other than those of the U.S. Treasury) issued in registered form or of a type offered to the public, or amounts from which federal income tax or foreign tax was withheld. In addition, interest accrued by a real estate mortgage investment conduit (REMIC), a financial asset securitization investment trust (FASIT) regular interest holder, or paid to a collateralized debt obligation (CDO) holder, will also be reported here.

The amounts and types of interest will impact which tax form is to be used. Taxpayers who receive over $1,500 of taxable interest must list all of their payers on Part 1 of Schedule B on Form 1040, or Part 1 of Schedule 1 on Form 1040A. That said, a taxpayer cannot file Form 1040EZ if his taxable interest income is more than $1,500. Form 1099-INT will always report interest paid as cash-basis income; this means that income that is owed but not yet paid cannot be reported on this form.

Here is a link to a downloadable IRS Form 1099-INT: Interest Income.