Form 1099-OID: Original Issue Discount (2017) – A Comprehensive Guide

What Form 1099-OID Is For

Form 1099-OID reports Original Issue Discount (OID), which is a type of interest income from debt instruments like bonds, certificates of deposit (CDs), and other securities. Think of OID as the difference between what you pay for a bond and what you'll get back when it matures—that difference represents interest you earn over time. For example, if you buy a bond for $95 and receive $100 at maturity, the $5 discount is OID that's taxable as interest income over the life of the bond.

Financial institutions, brokers, and debt issuers use this form to report OID of at least $10 to both you and the Internal Revenue Service. Unlike regular interest that gets paid periodically, OID accrues over the life of the obligation, and you must typically report it as income each year you hold the security—even if you haven't received the money yet. Common instruments that generate OID include zero-coupon bonds, certain CDs with terms over one year, Treasury Inflation-Protected Securities (TIPS), and corporate bonds issued at a discount.

The form also reports other important information like periodic interest payments, early withdrawal penalties, market discount, acquisition premium, bond premium, and any federal income tax withheld under backup withholding rules.

When You’d Use Form 1099-OID (Including Late or Amended Returns)

When You Receive It

You should receive Form 1099-OID by January 31, 2018 (for tax year 2017) from any payer who paid you at least $10 in OID, withheld foreign tax on your OID, or withheld federal income tax under backup withholding rules—even if the OID amount was less than $10.

Filing Your Tax Return

You use the information from Form 1099-OID when preparing your 2017 tax return, which was due April 17, 2018 (with extensions available until October 15, 2018). Report the OID amounts as interest income on Schedule B (Form 1040) if your total interest and dividends exceed certain thresholds.

Late or Amended Returns

If you discover you failed to report OID income after filing your original return, you must file an amended return using Form 1040X (Amended U.S. Individual Income Tax Return). You have generally three years from the original return due date to file an amended return and claim a refund, or two years from when you paid the tax, whichever is later. If you receive a corrected Form 1099-OID showing different amounts, file an amended return to correct the discrepancy.

Corrected Forms

If your financial institution issues a corrected Form 1099-OID (marked "CORRECTED" at the top), review the changes carefully and determine whether you need to amend your return. Minor differences may not warrant an amendment, but significant discrepancies in taxable income should be corrected.

Key Rules or Details for 2017

Reporting Threshold

Payers must issue Form 1099-OID if the total OID for the year is at least $10, or if any federal or foreign tax was withheld, regardless of the amount.

Covered vs. Noncovered Securities

The 2017 tax year was significant because reporting requirements differed for covered securities (generally acquired after certain dates) and noncovered securities. For tax-exempt obligations that are covered securities acquired on or after January 1, 2017, payers must report certain information that was previously optional, including tax-exempt OID in Box 11, market discount, acquisition premium, and bond premium.

Nominee Reporting

If you're listed as the record holder but the OID belongs to someone else (you're holding it as a nominee), you must issue Forms 1099-OID to the actual owners showing their respective amounts, then file these with the IRS along with Form 1096.

Backup Withholding

If you failed to provide your correct taxpayer identification number (TIN) to the payer or you under-reported interest income in previous years, the payer must withhold 28% of your OID payments as backup withholding. This amount appears in Box 4 and can be claimed as a credit on your tax return.

Exempt Recipients

Certain entities don't receive Form 1099-OID, including corporations, tax-exempt organizations, IRAs, health savings accounts, government agencies, and registered securities dealers.

U.S. Treasury Obligations

OID on U.S. Treasury bonds, notes, and bills is reported separately in Box 8 because it's exempt from state and local income taxes (though still subject to federal tax).

Step-by-Step (High Level)

Step 1: Gather Your Forms

Collect all Forms 1099-OID received from different payers by January 31, 2018. Organize them with your other tax documents.

Step 2: Review Each Form Carefully

Check that your name, address, and TIN are correct. Verify the amounts reported seem reasonable for the securities you held during 2017.

Step 3: Determine Necessary Adjustments

The amount in Box 1 may not be what you actually report. You may need to adjust for acquisition premium (Box 6), bond premium (Box 10), or if you bought or sold the security mid-year. Consult IRS Publication 1212 for detailed OID calculation rules.

Step 4: Calculate Total Interest Income

Add Box 1 (or Box 8 for Treasury obligations) to your other interest income. Include Box 2 (other periodic interest) if shown. Subtract Box 3 (early withdrawal penalty) from your income—this penalty is deductible.

Step 5: Complete Schedule B (If Required)

If your total interest and dividend income exceeds $1,500, you must complete Schedule B (Form 1040), listing each payer and amount

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