Form 1099-OID: Original Issue Discount (2019) – Your Complete Guide

What Form 1099-OID Is For

Form 1099-OID is an IRS tax form that reports a special type of interest income called ""Original Issue Discount"" or OID. This happens when you own bonds, notes, certificates of deposit (CDs), or other debt instruments that were originally sold for less than their face value at maturity. The difference between what was paid and what you'll receive at maturity is the OID—essentially interest that accumulates over time.

Think of it this way: if you buy a bond for $950 that will pay you $1,000 when it matures, that $50 difference is OID. Even though you won't receive that $50 until maturity, the IRS considers a portion of it as taxable income each year you hold the bond. Financial institutions, brokers, REMIC trusts, and other issuers use Form 1099-OID to report this annual OID amount to you and the IRS.

You'll receive this form if your OID income for the year was at least $10, or if any foreign tax was withheld on your OID, or if federal income tax was withheld under backup withholding rules. The form also reports other related information like acquisition premium, market discount, bond premium, and any qualified stated interest (regular interest payments) on the same obligation.

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

For the 2019 tax year, payers were required to send Form 1099-OID to recipients by January 31, 2020, and file Copy A with the IRS by February 28, 2020 (or March 31, 2020, if filing electronically). If you're a recipient who never received your form or received it late, you should still report all OID income on your tax return even without the form—the IRS expects you to report all taxable income.

Late Filing by Payers

If a payer missed the deadline, they face penalties ranging from $60 to $330 per form depending on how late the filing is and the size of their business. Intentional disregard carries even steeper penalties of $660 per form or 10% of the income reported.

Corrected Forms

Payers can issue corrected Forms 1099-OID if they discover errors after the original filing. There's no strict deadline for corrections, though the IRS prefers corrections within three years of the original filing date. If you receive a corrected Form 1099-OID, you may need to file an amended tax return (Form 1040-X) if the correction affects your tax liability. For 2019 returns, you have three years from the original filing deadline (generally April 15, 2020, extended to July 15, 2020, due to COVID-19) to file an amended return and claim a refund—so the deadline would be July 15, 2023, for most taxpayers.

Key Rules or Details for 2019

Several important rules governed Form 1099-OID for the 2019 tax year:

Reporting Threshold

Payers must file Form 1099-OID if the total OID includible in your gross income is at least $10, or if any foreign tax was withheld and paid on your OID, or if federal income tax was withheld under backup withholding rules (even if OID is less than $10).

Covered vs. Noncovered Securities

Starting in 2019, reporting requirements differed for ""covered securities"" (generally debt instruments acquired after certain effective dates) versus ""noncovered securities."" For covered securities acquired with acquisition premium, payers must report either a net OID amount (already adjusted) or both the gross OID and the acquisition premium separately. For tax-exempt obligations that are covered securities acquired on or after January 1, 2017, payers must report OID, acquisition premium, market discount, and bond premium.

Short-Term vs. Long-Term Obligations

OID on obligations with a term of one year or less is reported on Form 1099-INT, not Form 1099-OID. Form 1099-OID is only for longer-term debt instruments.

Nominee Reporting

If you received Form 1099-OID as a nominee (holding the investment for someone else), you must prepare a separate Form 1099-OID for the actual owner, listing yourself as the payer and filing it with the IRS along with Form 1096.

Exempt Recipients

Certain recipients don't receive Form 1099-OID even if they have OID income, including corporations, tax-exempt organizations, IRAs, health savings accounts, government agencies, and registered securities dealers.

Step-by-Step (High Level)

For Recipients (Taxpayers)

Receive the Form: You should receive Form 1099-OID by January 31, 2020 (for 2019 tax year), from each payer where you had at least $10 in OID.

Review the Information: Check that your name, address, and taxpayer identification number (TIN) are correct. Verify the amounts reported in each box match your records.

Understand the Key Boxes

• Box 1: Taxable OID you must report as interest income
• Box 2: Qualified stated interest (regular interest payments)
• Box 3: Early withdrawal penalties you can deduct
• Box 6: Acquisition premium (may reduce your OID)
• Box 8: OID on U.S. Treasury obligations (exempt from state/local tax)

Calculate Adjustments: Depending on when you acquired the security and other factors, you may need to adjust the OID amount using IRS Publication 1212. Common adjustments include acquisition premium, bond premium, and market discount.

Report on Your Tax Return: Report the OID as interest income on Schedule B (if required) or directly on Form 1040, Line 2b. Apply any adjustments per the instructions.

Keep Records: Retain your Form 1099-OID and any supporting documentation for at least three years.

For Payers (Issuers/Brokers)

Identify Reporting Obligations: Determine which debt instruments require reporting based on OID amount and holder type.

Calculate OID: Compute the daily portions of OID allocable to each holder for the calendar year.

Complete the Form: Fill out Form 1099-OID with all required information including payer and recipient TINs, OID amounts, and any adjustments.

Furnish to Recipients: Provide Copy B to recipients by January 31, 2020.

File with IRS: Submit Copy A with Form 1096 to the IRS by February 28, 2020 (paper) or March 31, 2020 (electronic). Electronic filing is mandatory if filing 250 or more forms.

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting OID Income Because You Didn't Receive Cash

Many taxpayers mistakenly think that since they didn't receive actual interest payments, they don't owe tax. Reality: OID is taxable as it accrues each year, even if you won't receive the money until maturity. Always report the amount in Box 1 of Form 1099-OID as interest income.

Mistake #2: Using the Wrong Amount from the Form

For covered securities, your payer may have already adjusted the OID for acquisition premium or bond premium. If Box 6 is blank but you have a covered security, the payer likely reported a net amount already adjusted in Box 1. Solution: Don't double-adjust—read the form instructions carefully and check IRS Publication 1212 if unsure.

Mistake #3: Failing to Report When No Form Was Received

If you didn't receive Form 1099-OID but you held discount obligations, you're still required to calculate and report the OID. Prevention: Keep detailed records of your bond purchases and use IRS Publication 1212 to calculate OID yourself.

Mistake #4: Incorrect Taxpayer Identification Number

Providing an incorrect TIN triggers backup withholding at 24% and delays processing. Solution: Double-check your Social Security number or employer identification number before providing it to payers. Use IRS Form W-9 to provide correct information.

Mistake #5: Not Adjusting for Early Withdrawal Penalties

If you withdrew funds early from a CD and forfeited interest (shown in Box 3), you can deduct this penalty. Don't forget: Claim this deduction on Schedule 1 of Form 1040—it's an adjustment to income, not an itemized deduction.

Mistake #6: Confusing OID with Regular Interest

Some taxpayers mix up Form 1099-OID with Form 1099-INT. Remember: Form 1099-OID reports discount income on bonds bought below face value, while Form 1099-INT reports regular interest from savings accounts, bonds, and other instruments. They're reported similarly on your tax return but represent different types of income.

Mistake #7: Duplicate Reporting

Some payers report both qualified stated interest and OID on Form 1099-OID (Box 2 and Box 1), while others split them between Form 1099-INT and Form 1099-OID. Avoid double reporting: Carefully track which amounts appear on which form to prevent reporting the same income twice.

What Happens After You File

Recipient's Perspective

Once you report your Form 1099-OID information on your tax return, the IRS matches it against the information reported by your payer. If everything matches and your return is accepted, you've fulfilled your obligation. The OID income is taxed at your ordinary income tax rate, just like other interest income.

If the IRS notices a discrepancy between what you reported and what your payer reported, you may receive a CP2000 notice (Underreporter Inquiry) several months after filing. This isn't technically an audit but a request to explain the difference. Respond promptly with documentation showing either the correct amount or why an adjustment was necessary.

Payer's Perspective

After filing Form 1099-OID with the IRS and providing copies to recipients, payers must retain Copy C for their records. The IRS may request additional documentation during audits or reviews. If errors are discovered after filing, payers should promptly issue corrected forms marked ""CORRECTED"" and file them with the IRS.

Penalties

Recipients who fail to report OID income may face accuracy-related penalties of 20% of the underpayment, plus interest. In cases of fraud, penalties can reach 75%. Payers who fail to file or furnish forms timely face penalties ranging from $60 to $660 per form depending on timing and intent.

Refunds and Adjustments

If you later discover you overpaid tax due to an error on Form 1099-OID, you can file Form 1040-X (Amended Return) within three years of the original filing deadline or two years from when you paid the tax, whichever is later. For 2019 returns originally due July 15, 2020, this generally means you have until July 15, 2023, to claim a refund.

FAQs

Q1: I received a Form 1099-OID, but I thought my CD only paid regular interest. Why did I get this form?

Many CDs with terms longer than one year are issued at a discount, even if the discount is small. If your CD was purchased for less than its maturity value or structured to pay all interest at maturity rather than periodically, it generates OID. Your bank or broker is required to report this on Form 1099-OID rather than Form 1099-INT.

Q2: Do I need to report OID on tax-exempt municipal bonds?

Tax-exempt OID (shown in Box 11 of Form 1099-OID) is generally exempt from federal income tax, though it may affect certain calculations like alternative minimum tax (AMT) for specified private activity bonds. Report tax-exempt OID on your tax return where indicated (typically Form 1040, Line 2a), but it won't increase your taxable income. However, market discount on tax-exempt bonds is taxable.

Q3: I sold my bond halfway through the year. How do I report the OID?

The amount shown on your Form 1099-OID should reflect only the portion of the year you held the obligation—your payer calculates this. Report the amount from Box 1 as interest income. You may also have capital gain or loss from the sale itself, which you'd report separately on Schedule D.

Q4: What's the difference between acquisition premium (Box 6) and bond premium (Box 10)?

Both reduce your taxable income but apply to different situations. Acquisition premium applies when you buy a bond with OID for more than its adjusted issue price but less than its maturity value—it reduces your OID income. Bond premium applies when you buy any bond (with or without OID) for more than its maturity value—it reduces your regular interest income. Your payer calculates these for covered securities acquired after certain dates.

Q5: My Form 1099-OID shows an amount in Box 4 (Federal Income Tax Withheld). Why was tax withheld?

This typically happens due to backup withholding, which occurs when you didn't provide your payer with a correct taxpayer identification number or the IRS notified the payer to begin backup withholding. The withheld amount is 24% of certain payments. Claim this amount as tax withheld on your tax return—it works like regular income tax withholding from your paycheck.

Q6: I received a corrected Form 1099-OID months after filing my tax return. What should I do?

First, compare the corrected form to the original. If the change is minor (a few dollars) and wouldn't affect your tax liability, you may choose not to amend your return. For significant changes, file Form 1040-X (Amended Return) to correct the error. You generally have three years from your original filing deadline to amend and claim any refund due.

Q7: Where can I find more information about calculating OID for my specific bonds?

The IRS publishes Publication 1212, ""Guide to Original Issue Discount (OID) Instruments,"" which lists publicly offered debt instruments with OID and provides detailed calculation guidance. It's available free at IRS.gov/Pub1212. For complex situations, consult a tax professional.

Additional Resources

Source: All information is based on official IRS instructions and forms, including the 2019 Instructions for Forms 1099-INT and 1099-OID and Form 1099-OID (2019), available at IRS.gov.

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