Form 1099-INT Interest Income 2010: A Complete Guide

What Form 1099-INT Is For

Form 1099-INT is an information return that reports interest income you received during the 2010 calendar year. If you earned at least $10 in interest from banks, savings accounts, bonds, or other interest-bearing investments, the financial institution that paid you will send you this form. Think of it as a receipt showing how much interest income you earned—and the IRS gets a copy too.

Banks, credit unions, brokerage firms, and other financial institutions must file this form to report various types of interest they paid to you, including regular savings account interest, interest on certificates of deposit (CDs), U.S. Savings Bond interest, and even certain tax-exempt interest from municipal bonds. The form also reports any early withdrawal penalties you paid and any federal income tax that was withheld from your interest payments.

The 2010 version introduced a new box (Box 10) specifically for reporting CUSIP numbers on tax-exempt bonds, making it easier to track which bonds generated your tax-free interest. Additionally, this year's form included reporting requirements for new tax credit bonds like Build America bonds and qualified school construction bonds, where the credit you receive is treated as interest income.

When You’d Use Form 1099-INT

Late/Amended Filings

If you're a payer (a financial institution) who missed the original February 28, 2011 deadline for paper filing (or March 31, 2011 for electronic filing), you should file as soon as possible to minimize penalties. The IRS charges $50 per form for late filing, with the penalty increasing if you delay more than 30 days past the due date.

For amended returns, you'll need to file a corrected Form 1099-INT if you discover errors in the information you originally reported. Check the "CORRECTED" box at the top of the form and submit it to the IRS along with a new Form 1096 transmittal. Common reasons for corrections include wrong recipient names, incorrect taxpayer identification numbers (TINs), or inaccurate interest amounts. You must also provide the corrected statement to the recipient so they can amend their personal tax return if necessary.

Recipients who didn't receive their Form 1099-INT by January 31, 2011 should contact the payer directly to request a copy. If you're filing your personal tax return and know you earned interest but never received the form, you're still legally required to report that interest income on your return—the IRS already has a copy of the form showing what you earned.

Key Rules or Details for 2010

The threshold for mandatory reporting in 2010 was $10 in interest income for amounts reported in Boxes 1, 3, and 8. However, if interest was paid in the course of a trade or business (like interest on delayed death benefits or interest with damages), the threshold was $600.

Filing deadlines were critical: payers had to furnish Copy B to recipients by January 31, 2011, and file Copy A with the IRS by February 28, 2011 for paper returns or March 31, 2011 for electronic submissions. Electronic filing was mandatory if you were filing 250 or more forms of the same type.

Backup withholding applied at a 28% rate in 2010 if recipients failed to provide a correct TIN or if the IRS notified the payer of TIN problems. This withholding was reported in Box 4 of Form 1099-INT.

Certain recipients were exempt from receiving Form 1099-INT, including corporations, tax-exempt organizations, IRAs, government agencies, and registered securities dealers. This meant banks didn't need to send these forms to business accounts in most cases.

The 2010 tax year saw special reporting requirements for tax credit bonds. Interest from clean renewable energy bonds, qualified school construction bonds, and Build America bonds was treated as taxable interest and reported in Box 1, with credits paid on specific allowance dates throughout the year (March 15, June 15, September 15, December 15, and the bond's final day outstanding).

Step-by-Step (High Level)

For Payers (Financial Institutions):

First, gather all interest payment records for each account holder who received $10 or more in reportable interest during 2010. Verify that you have correct taxpayer identification numbers (TINs) for all recipients—this is crucial to avoid backup withholding requirements and penalties.

Next, complete Form 1099-INT for each recipient, entering amounts in the appropriate boxes: Box 1 for taxable interest, Box 2 for early withdrawal penalties, Box 3 for U.S. Savings Bond interest, Box 4 for backup withholding, Box 8 for tax-exempt interest, and the new Box 10 for CUSIP numbers on tax-exempt bonds. Double-check all entries for accuracy, as the IRS machines read these forms automatically and errors can trigger notices.

Provide Copy B to each recipient by January 31, 2011. You can mail them, deliver them in person, or provide them electronically if the recipient consents. Keep Copy C for your records.

File Copy A with the IRS by February 28, 2011 (paper) or March 31, 2011 (electronic), along with Form 1096 as a transmittal document. If you're filing 250 or more forms of the same type, electronic filing is mandatory unless you receive a hardship waiver by submitting Form 8508 at least 45 days before the due date.

For Recipients (Individuals):

When you receive Form 1099-INT in January 2011, review it carefully to ensure all information is accurate. Compare the amounts to your own records and verify your name and TIN are correct.

Report the interest income on your 2010 tax return: Box 1 amounts go on the "taxable interest" line of Form 1040, Box 3 amounts (U.S. obligations) also go on the taxable interest line but may be exempt from state taxes, and Box 8 amounts go on the "tax-exempt interest" line. Even though Box 8 interest isn't taxable for federal purposes, you must still report it.

If Box 2 shows an early withdrawal penalty, you can deduct this amount on your Form 1040 to arrive at your adjusted gross income. Box 4 amounts should be included in your total tax withheld for the year.

Common Mistakes and How to Avoid Them

Mistake #1: Wrong or missing TIN.

This is the single most common error that triggers backup withholding and IRS notices. Payers should verify TINs when accounts are opened and use the IRS TIN Matching program (available through IRS e-services) to validate name/TIN combinations before filing. Recipients should ensure their financial institutions have their correct Social Security number or TIN on file.

Mistake #2: Failing to aggregate interest from multiple accounts.

If you have several accounts at the same institution, the payer must aggregate all interest to determine if it meets the $10 threshold. Don't file multiple forms for the same recipient when one consolidated form will do.

Mistake #3: Reporting tax-exempt interest on Form 1099-DIV instead of Form 1099-INT.

Exempt-interest dividends from mutual funds should be reported in Box 8 of Form 1099-INT, not on Form 1099-DIV.

Mistake #4: Failing to report new tax credit bond interest.

For 2010, credits from qualified school construction bonds and Build America bonds must be treated as interest and reported in Box 1. Many payers initially overlooked this new requirement.

Mistake #5: Reducing Box 1 by the early withdrawal penalty.

If someone forfeited interest due to early CD withdrawal, report the full interest amount in Box 1 and the penalty separately in Box 2. Don't subtract the penalty from the interest—recipients need both figures for accurate tax reporting.

Mistake #6: Using handwritten forms that are illegible.

The IRS processes these forms by machine. If you must handwrite forms, use clear block letters and black ink. Better yet, use tax software or contact an IRS-approved service provider to generate typed forms.

What Happens After You File

After payers submit Form 1099-INT to the IRS, the information is matched against recipients' tax returns. The IRS uses sophisticated computer systems to compare the interest income you reported on your Form 1040 with the total interest reported on all 1099-INT forms issued in your name and TIN.

If there's a mismatch—meaning you reported less interest income than the IRS received on Forms 1099-INT—you'll likely receive a CP2000 notice (Underreported Income notice) proposing additional tax, penalties, and interest. This typically arrives 12-18 months after you file your return. If you receive this notice, review it carefully; sometimes it's wrong due to payer errors or duplicate reporting.

For payers, the IRS may send CP2100 or CP2100A notices if there are name/TIN mismatches on forms you submitted. These "B" notices require you to contact affected account holders to obtain correct information and potentially implement backup withholding.

If you filed late or with errors, expect penalty assessments. The penalty for failing to file timely is $50 per form (up to $250,000 annually), with higher penalties if the failure is intentional. For small businesses, these penalties can accumulate quickly if you have numerous account holders.

Records should be kept for at least three years from the form's due date, or four years if backup withholding was involved. This ensures you can respond to any IRS inquiries or recipient disputes about the amounts reported.

FAQs

Q: I received a Form 1099-INT showing $8 in interest. Do I need to report it on my tax return?

Yes. Even though payers aren't required to file Form 1099-INT for amounts under $10, all interest income is taxable and must be reported on your return, regardless of the amount. The IRS doesn't care if you received a form; they care that you report all income.

Q: Can I file Form 1099-INT on paper if I only have 100 forms to submit?

Absolutely. The 250-form electronic filing threshold applies separately to each form type. If you're filing fewer than 250 Forms 1099-INT, you can use paper forms. However, the IRS encourages electronic filing even for smaller quantities because it's faster, more accurate, and you'll get confirmation of acceptance.

Q: What if I forgot to include the new CUSIP number in Box 10 for tax-exempt bonds?

If the bond was issued without a CUSIP number, you can leave Box 10 blank—that's acceptable. However, if a CUSIP exists and you omitted it, you should file a corrected return. This new 2010 requirement helps the IRS track tax-exempt bond interest more accurately.

Q: I paid interest to a foreign person. Do I use Form 1099-INT?

Generally, no. Payments to foreign persons are typically reported on Form 1042-S, not Form 1099-INT. However, there's an exception for Canadian nonresident aliens receiving U.S. bank deposit interest, which may require Form 1042-S but is not subject to backup withholding. Consult the Instructions for Form 1042-S and Publication 515 for detailed guidance on foreign payees.

Q: How do I handle joint accounts where one person's Social Security number is used?

The person whose TIN is associated with the account will receive the Form 1099-INT showing all interest income. That person isn't required to file a nominee return to show their spouse's share. However, if the account has a non-spouse co-owner, you should file a nominee Form 1099-INT showing the other owner's share of interest, listing yourself as the payer.

Q: Can I get an extension to file Form 1099-INT?

Yes. File Form 8809 (Application for Extension of Time to File Information Returns) to get an automatic 30-day extension. You must file Form 8809 by the original due date of the returns. Under certain hardship conditions, you can apply for an additional 30-day extension. The extension applies to filing with the IRS, not to furnishing statements to recipients (though a separate extension process exists for recipient statements).

Q: What's the difference between Box 1 and Box 8 interest?

Box 1 reports taxable interest—the kind that increases your federal tax bill. Box 8 reports tax-exempt interest, typically from state and municipal bonds. While Box 8 interest doesn't increase your federal income tax, you must still report it on your return because it can affect other calculations, such as whether your Social Security benefits are taxable or whether you qualify for certain tax credits.

Sources

Sources: All information in this guide comes from official IRS publications for tax year 2010, including 2010 Instructions for Forms 1099-INT and 1099-OID, Form 1099-INT 2010, and 2010 General Instructions for Certain Information Returns.

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