Form 1099-OID: Original Issue Discount (2010)

What Form 1099-OID Is For

Form 1099-OID reports original issue discount (OID), which is a special type of interest income you must pay taxes on.

But what exactly is OID? Think of it this way: when certain bonds, certificates of deposit (CDs), or other debt instruments are issued at a price lower than what they'll pay out at maturity, that difference is the OID. It's essentially interest that's built into the discount you received when buying the security.

For example, imagine you buy a bond for $950 that will pay you $1,000 when it matures in 10 years. That $50 difference is OID—it's interest you're earning, even though you won't see the cash until the bond matures. The IRS requires you to report a portion of this OID as taxable income each year you hold the instrument, not just when you finally cash it in.

Who Receives This Form

You'll get a Form 1099-OID if you held bonds, certain CDs lasting more than one year, stripped bonds or coupons, or participated in more complex investment vehicles like REMICs (Real Estate Mortgage Investment Conduits) or CDOs (Collateralized Debt Obligations). The issuer of the debt instrument, your broker, or the financial institution holding it for you will send you this form if your OID for the year was at least $10.

Key Boxes on the Form

The form itself shows several key pieces of information:

• Box 1: OID amount you must include in your 2010 income
• Box 2: Additional periodic interest paid
• Other boxes may show early withdrawal penalties, backup withholding, or investment expenses

When You’d Use Form 1099-OID (Late/Amended Filing)

For the 2010 tax year, payers were required to send you Copy B of Form 1099-OID by January 31, 2011. If you filed your original 2010 tax return, you reported this information on your return due April 15, 2011 (or October 15, 2011 with an extension).

Late Filing

If you never filed your 2010 tax return, you should file it as soon as possible. There’s no time limit for filing a late return, though penalties and interest will accrue. You’ll still use the 2010 Form 1099-OID information for accuracy.

Amended Returns

If you discover an error, you might need to file an amended return using Form 1040X. Common reasons include:

• Receiving a corrected 1099-OID after filing
• Forgetting to include OID income
• Miscalculations

You generally have three years from your original filing (or two years from payment) to amend and claim a refund.

Missing Forms

If you didn’t receive a required Form 1099-OID, you’re still required to report the income. Contact the issuer or broker to request a copy. The IRS already has its own copy, so omitting this income could trigger an audit or notice.

Key Rules for 2010

The $10 Threshold

Payers only needed to file Form 1099-OID if the includible OID was at least $10. Exceptions apply if federal or foreign tax was withheld.

Accrual Basis Reporting

OID must be reported annually as it accrues—even if you haven’t received cash—using the IRS’s constant yield method.

De Minimis Rule

If total discount is less than 0.25% of redemption price × years to maturity, the OID can be treated as zero (“de minimis OID”). You won’t need to report annual accruals.

What’s Exempt

OID rules don’t apply to:

• U.S. savings bonds
• Tax-exempt municipal bonds
• Instruments maturing within one year
• Small personal loans under $10,000

Backup Withholding

If your TIN (SSN or EIN) was missing or incorrect, payers withheld 28% federal tax (Box 4). You can claim this as a credit.

Nominee Situations

If someone holds an OID instrument for you, they must issue you a 1099-OID showing your share (e.g., joint accounts).

Step-by-Step: How to Report

Step 1: Gather Your Forms

Collect all your 2010 Forms 1099-OID and verify your personal details. Include all forms from different payers.

Step 2: Review the Key Boxes

• Box 1: OID for 2010 (report this as income)
• Box 2: Other interest on the same obligation
• Box 3: Early withdrawal penalties (deductible)
• Box 4: Federal tax withheld
• Box 6: Treasury OID (reported separately)

Step 3: Determine If Adjustments Are Needed

You may need to recalculate OID if you:

• Bought the bond at a premium or discount
• Bought or sold mid-year
• Own a stripped bond

Consult Publication 1212 for the proper calculation.

Step 4: Report on Schedule B or Form 1040

If total interest exceeds $1,500, file Schedule B and list each payer. If not, report directly on Form 1040, Line 8a.

Step 5: Claim Early Withdrawal Penalties

Deduct penalties from Box 3 on Form 1040, Line 30 to reduce adjusted gross income.

Step 6: Report Withholding

Include any Box 4 amounts on Form 1040, Line 62 with other federal withholdings.

Step 7: Keep Records

Retain all OID forms and records for at least three years (four if backup withholding applied).

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting OID

Even if you didn’t receive cash, you must report accrued OID. The IRS matches payer records.

Mistake #2: Reporting the Wrong Amount

If you bought or sold the bond after original issue, the OID in Box 1 may not apply directly. Use Publication 1212 for correct reporting.

Mistake #3: Forgetting Box 6 (Treasury OID)

Box 6 income must be included separately but is still taxable.

Mistake #4: Not Claiming Early Withdrawal Penalties

These are deductible on Form 1040, Line 30—many taxpayers miss them.

Mistake #5: Double-Reporting Interest

Avoid counting the same interest shown on both a 1099-INT and 1099-OID.

Mistake #6: Ignoring Nominee Requirements

Nominees must file and furnish 1099-OID forms for actual owners.

Mistake #7: Incorrect Taxpayer Identification Number

A wrong or missing TIN leads to 28% backup withholding. Always submit a valid Form W-9.

What Happens After You File

IRS Matching Process

The IRS cross-checks your OID income against payer data. Discrepancies trigger a CP2000 notice proposing tax changes.

Basis Adjustment

Each year’s OID increases your cost basis in the bond. Keep track for future sale or redemption to avoid double-taxation.

Potential for Audit

Incorrect or missing OID entries can draw attention, though most issues are resolved via correspondence.

Refunds and Credits

Amounts in Box 4 (backup withholding) are applied to your total tax liability or refunded if overpaid.

State Tax Implications

OID income is usually taxable at the state level—except U.S. Treasury OID (Box 6), which many states exempt.

Future Year Reporting

If you continue to hold OID instruments, you’ll receive new 1099-OID forms each year until maturity.

FAQs

Q1: Do I owe taxes on OID even though I didn't receive any money?

Yes. OID must be reported as it accrues, even without cash payment. You won’t be taxed again when the bond matures.

Q2: What if the amount on my Form 1099-OID seems wrong?

Contact the issuer for clarification or a corrected form. If necessary, adjust the amount per Publication 1212 and report the correct figure.

Q3: I received a Form 1099-OID but the amount in Box 1 is less than $10. Do I still report it?

Yes. The $10 rule applies only to filing obligations—not reporting. You must still report any OID earned.

Q4: What's the difference between Form 1099-OID and Form 1099-INT?

• 1099-INT: Reports regular, received interest
• 1099-OID: Reports accrued, built-in interest (discount-based)

Both are taxable as ordinary interest income.

Q5: How do I know if the de minimis rule applies to my bond?

Compute:
(RedemptionPrice–IssuePrice)÷(RedemptionPrice×YearstoMaturity)(Redemption Price – Issue Price) ÷ (Redemption Price × Years to Maturity)(RedemptionPrice–IssuePrice)÷(RedemptionPrice×YearstoMaturity)
If < 0.0025 (0.25%), OID can be treated as zero.

Q6: Can I deduct investment expenses related to OID instruments?

Yes—certain expenses (Boxes 5 or 7) may be deductible on Schedule A if you itemize.

Q7: What should I do if I sold my OID bond before maturity in 2010?

Report the sale on Schedule D. Include both:

• OID interest on Schedule B
• Capital gain/loss on Schedule D

Adjust your basis for OID previously reported to prevent double-taxation.

Sources

• IRS Form 1099-OID (2010)
• Instructions for Forms 1099-INT and 1099-OID (2010)
• IRS Publication 550 – Investment Income and Expenses (2010)
• IRS General Instructions for Certain Information Returns (2010)

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