Form 1099-INT

Form 1099-INT is the information return a payer files to report interest paid or credited to a person during the calendar year. Its official title is "Interest Income". Section 6049 of the Internal Revenue Code sets the trigger at payments "aggregating $10 or more", which is why a Form 1099-INT arrives for amounts far below the general threshold that governs most other information returns.

The interest section 6049 reaches is defined rather than assumed: interest on an obligation issued in registered form or of a type offered to the public, interest on bank deposits, amounts paid by savings and loan associations, credit unions and similar organizations in respect of deposits and shares, interest on amounts held by an insurance company, interest on deposits with brokers, and interest on amounts held by investment companies and other pooled funds. A second and higher trigger catches interest paid in the course of a trade or business that falls outside that list, such as interest on a state or federal income tax refund, interest received with damages, or interest on delayed life insurance death benefits. That second trigger is not a section 6049 figure at all: section 6041 governs it, and section 6041(a) expressly excludes payments already reached by section 6049(a). The current revision of the Form 1099-INT instructions predates the 2025 increase in the section 6041 amount and has not been reissued, so the figure printed on that form's instructions and the figure in the statute are not currently the same.

The first three boxes separate interest by who gets to tax it. Box 1 is ordinary taxable interest: bank deposits, corporate bonds, accumulated dividends paid by a life insurance company, and interest on notes and debentures. Box 3 is interest on US savings bonds, Treasury bills, Treasury notes and Treasury bonds, and the instructions require that it be kept out of box 1. The reason is not cosmetic. Title 31 of the United States Code, section 3124(a), provides that "stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State," so box 3 interest is federally taxable and generally free of state and local income tax. Box 8 runs the other way: tax-exempt interest, chiefly from municipal bonds, is generally excluded from federal gross income and may or may not be taxable by your own state depending on who issued the bond.

Box 8 is reported precisely because it is not taxed. Tax-exempt interest appears on Form 1040 on its own line, and it is an input to several calculations built on top of adjusted gross income, most visibly the provisional income figure that decides how much of a Social Security benefit is taxable. Box 9 breaks out the portion of box 8 that came from specified private activity bonds, meaning private activity bonds issued after August 7, 1986, which is an alternative minimum tax preference item. The instructions are explicit that box 9 is included in the box 8 total, so the two are not added.

Box 2 is a deduction hiding inside an income form. It reports interest or principal forfeited because of an early withdrawal from a time deposit, typically a certificate of deposit cashed before maturity. The instructions are specific that the payer must not reduce box 1 by the forfeiture, so the form reports the full interest credited and the penalty separately. On the return the penalty is subtracted in arriving at adjusted gross income, under section 62(a)(9) of the tax code, which reaches amounts "forfeited to a bank, mutual savings bank, savings and loan association, building and loan association, cooperative bank or homestead association as a penalty for premature withdrawal of funds from a time savings account, certificate of deposit, or similar class of deposit." Because it is an above-the-line subtraction it is available whether or not you itemize.

Box 5 says what it is and the instructions say what it is not. Box 5 reports investment expenses for single-class real estate mortgage investment conduits, and the instructions carry a one-line note underneath: "This amount is not deductible." It is a residue of a deduction that no longer exists for individuals.

The bond adjustment boxes are for people who bought at other than par. Box 10 is accrued market discount, box 11 is bond premium on an ordinary taxable covered security, box 12 is bond premium on a Treasury obligation, and box 13 is bond premium on a tax-exempt bond. Each adjusts the interest a holder actually reports, and a payer that has already netted the adjustment into the interest figure leaves the box blank instead. Box 14 gives the CUSIP number of the bond, which is the only way to work out which state issued a tax-exempt bond, and therefore whether the interest is also exempt where you live.

Boxes 4, 6 and 7 are withholding and foreign tax. Box 4 is federal income tax withheld, which on this form means backup withholding applied because a taxpayer identification number was missing or flagged. Boxes 6 and 7 report foreign tax paid on interest and the country it went to, which is the input to a foreign tax credit or deduction.

Several things that feel like interest arrive on other forms. Interest that is taxable original issue discount goes on Form 1099-OID, and tax-exempt original issue discount goes in box 11 of that form. Dividends from money market funds go on Form 1099-DIV, not here, even though the economics look like interest. Exempt-interest dividends from a municipal bond fund also go on Form 1099-DIV, in box 12, which is why a direct bondholder and a fund holder receive the same economic income on two different forms.

The exempt recipient list is why some interest never generates a form. No Form 1099-INT is required for payments to a corporation, a tax-exempt organization, an individual retirement arrangement, an Archer medical savings account, a Medicare Advantage medical savings account, a health savings account, a US agency, a state, the District of Columbia, a US territory, or a registered securities or commodities dealer. Interest earned inside a retirement account falls under that list, which is the mechanical answer to why an IRA holding bonds produces no annual tax paperwork.

On a return, the boxes go to four different places.

1. Box 1 and box 3 go to the taxable interest line of Form 1040, added together, and to Schedule B where the year's taxable interest exceeds $1,500. The split between them matters on the state return rather than the federal one.

2. Box 8 goes to the tax-exempt interest line, where it is disclosed and not taxed.

3. Box 2 is subtracted in arriving at adjusted gross income, on Schedule 1, and is available whether or not you itemize.

4. Box 4 is a payment, credited against the year's tax exactly like wage withholding.

A hypothetical example of box 2, which is the box most often handled wrong. Ilse holds a three-year certificate of deposit and cashes it in after fourteen months to cover a roof repair. The bank had credited $780 of interest to the account, and the early withdrawal penalty is $240, which the bank takes out of the balance she receives.

Her Form 1099-INT shows $780 in box 1 and $240 in box 2. She reports the full $780 as interest income, because the instructions forbid the bank from netting the penalty against it, and separately subtracts the $240 in arriving at adjusted gross income. The net effect on adjusted gross income is $540, which is $780 minus $240. Reporting $540 of interest instead would produce the same adjusted gross income and a mismatch against the figure the IRS already holds, and it would understate the income measure that several other rules are tested against before the subtraction happens.

What the form does well

• The $10 threshold captures nearly all taxable interest, so almost nothing in this category depends on a taxpayer remembering an account exists.
• Separating Treasury interest into its own box gives a state return the figure it needs without any reconstruction.
• Reporting tax-exempt interest even though it is untaxed is what makes the downstream calculations that depend on it possible.
• Box 2 documents a deduction that a depositor would otherwise have no record of, since the penalty is usually just a smaller closing balance.

Where it causes trouble

• Nothing is withheld, so a year of unusually high interest can create an underpayment that only appears at filing.
• Box 8 is federally tax-free and still counts toward income measures such as the one that decides how much of a Social Security benefit is taxable, which catches retirees who moved into municipal bonds for exactly that reason.
• The bond premium and market discount boxes are genuinely difficult, and a payer that nets an adjustment into the interest figure leaves the box blank, so a blank box does not mean the adjustment did not happen.
• Composite brokerage statements bundle this form with several others and are reissued in corrected versions with some regularity.
• Interest earned in a foreign account produces no Form 1099-INT at all, while remaining fully taxable and separately reportable.