What Schedule B (Form 1040) Is For

Schedule B (Form 1040) is an attachment to your main tax return that provides detailed information about interest income and ordinary dividends you earned throughout 2018. Think of it as a worksheet where you list every bank, brokerage, or company that paid you interest or dividends during the year. IRS

While most people simply report their total interest and dividends directly on Form 1040, Schedule B is required when you cross certain thresholds or have special situations. The form has three parts: Part I covers interest income (from savings accounts, bonds, CDs, etc.), Part II covers ordinary dividends (from stocks and mutual funds), and Part III deals with foreign financial accounts and trusts—an important compliance section that catches many taxpayers by surprise.

The form serves multiple purposes beyond just reporting income. It helps the IRS verify that you're properly reporting all taxable income, ensures you're meeting foreign account disclosure requirements, and provides documentation if you're claiming special exclusions (like savings bond interest used for education expenses). For taxpayers with seller-financed mortgages, it also documents the buyer-seller relationship to prevent tax evasion.

When You’d Use Schedule B (and When to File Late or Amended Returns)

Filing Requirement for 2018

You must file Schedule B if any of these situations apply to your 2018 tax year:

• Your total taxable interest or ordinary dividends exceeded $1,500
• You received interest from a mortgage where you financed the buyer's purchase and they used the property as a personal residence
• You have accrued interest from a bond purchase
• You're reporting original issue discount (OID) different from what appears on your Form 1099-OID
• You're reducing interest income due to amortizable bond premium
• You're excluding interest from Series EE or I U.S. savings bonds (issued after 1989) used for education
• You received interest or dividends as a nominee (meaning you received them on behalf of someone else)
• You had any foreign financial account or signature authority over such accounts, regardless of the amount IRS

Late or Amended Returns

If you realize after filing your 2018 return that you should have included Schedule B but didn't, you need to file an amended return using Form 1040X. Common reasons include discovering unreported interest from a forgotten bank account, realizing you exceeded the $1,500 threshold, or failing to disclose foreign accounts. For 2018 returns, the general deadline to amend was April 15, 2022 (three years from the original filing deadline), though exceptions exist for foreign account disclosures. If you failed to report foreign accounts on Part III, the statute of limitations may remain open indefinitely, making prompt correction essential to avoid penalties.

Key Rules and Thresholds for 2018

The $1,500 Rule

The $1,500 Rule: This is the most important threshold. If your combined taxable interest and ordinary dividends total $1,500 or less, you can skip Schedule B and report the amounts directly on Form 1040. Once you cross that line—even by a dollar—you must complete Schedule B and provide itemized details.

What Counts as Taxable Interest

Include interest from checking and savings accounts, certificates of deposit (CDs), U.S. savings bonds (Series EE, H, HH, and I), corporate bonds, seller-financed mortgages, and money market accounts. Also include any accrued market discount that is includible in income and any gain on a contingent payment debt instrument that is includible in income as interest income. Tax-exempt interest from municipal bonds doesn't count toward the $1,500 threshold but must still be reported on Form 1040 line 2a.

Ordinary vs. Qualified Dividends

Schedule B only deals with ordinary dividends (box 1a on Form 1099-DIV). Qualified dividends receive preferential tax treatment but are reported elsewhere on Form 1040. Don't confuse the two—ordinary dividends are taxed at your regular income tax rate, which for 2018 ranged from 10% to 37% depending on your income bracket.

Foreign Account Disclosure

Part III requirements applied regardless of the dollar amount if you had any foreign financial account in 2018. This includes foreign bank accounts, foreign mutual funds, foreign brokerage accounts, and even signature authority over accounts you don't own (common for business executives). The separate FinCEN Form 114 (FBAR) was required if the aggregate value of all foreign accounts exceeded $10,000 at any time during 2018. IRS

Nominee Reporting

If you received a Form 1099 showing interest or dividends that actually belong to someone else (common in joint accounts or trusts), you must report the full amount on Schedule B, then subtract the portion belonging to others. You're also required to issue a Form 1099 to the actual owner and file it with the IRS.

Step-by-Step (High Level)

Part I – Interest (Lines 1–4)

Start by gathering all your Forms 1099-INT and 1099-OID. On line 1, list each payer's name and the amount of interest received. If you sold property using seller financing, list that buyer first, including their name, address, and Social Security number—this is legally required. Failure to provide this information may result in a $50 penalty. Add up all interest amounts and enter the total on line 2. If you qualify for any exclusions (like savings bond interest for education using Form 8815), follow the line 3 instructions and reduce your total on line 4.

Part II – Ordinary Dividends (Lines 5–6)

Pull out your Forms 1099-DIV and look at box 1a (ordinary dividends only—ignore qualified dividends for this schedule). List each company or fund that paid you ordinary dividends along with the amounts on line 5. Total them up and enter the result on line 6. If you received dividends as a nominee, use the subtraction method similar to Part I by entering a subtotal, then subtracting the nominee distribution amount.

Part III – Foreign Accounts and Trusts (Lines 7a–8)

This section requires careful attention. Question 1 on line 7a asks whether you had a financial interest in or signature authority over any foreign financial account during 2018. A financial account includes securities, brokerage, savings, demand, checking, deposit, time deposit, or other accounts maintained with a financial institution. It also includes commodity futures or options accounts, insurance policies with cash value (such as whole life insurance), annuity policies with cash value, and shares in mutual funds or similar pooled funds. Check "Yes" even if the account had minimal value.

Question 2 asks if you're required to file FinCEN Form 114 (the FBAR). You must file the FBAR if the aggregate value of all your foreign accounts exceeded $10,000 at any point in 2018—even for a single day. On line 7b, list the countries where your accounts are located. Line 8 addresses foreign trusts—check "Yes" if you received any distribution from (including loans of cash or marketable securities) or were a grantor of or transferor to a foreign trust during 2018.

Final Steps

After completing all relevant parts, attach Schedule B to your Form 1040. The interest total from line 4 goes on Form 1040 line 2b, and the ordinary dividend total from line 6 goes on Form 1040 line 3b. Keep all your Forms 1099 with your tax records—don't attach them to your return.

Common Mistakes and How to Avoid Them

Mistake #1: Miscounting Toward the $1,500 Threshold

Many taxpayers forget to include small amounts from multiple sources. That $400 in savings account interest plus $800 in bond interest plus $350 in dividends equals $1,550—Schedule B is required. Review all your Forms 1099 carefully before deciding you're under the threshold.

Mistake #2: Ignoring Foreign Account Questions

Some taxpayers check "No" on Part III because their foreign account is small or because they're unaware of the rules. The penalties for failing to disclose foreign accounts can be severe—up to $10,000 for non-willful violations and up to the greater of $100,000 or 50% of the account balance for willful violations. Willful violations also may be subject to criminal penalties.

Mistake #3: Reporting Qualified Dividends on Schedule B

Schedule B only captures ordinary dividends (box 1a on Form 1099-DIV). Qualified dividends (box 1b) are reported separately on Form 1040. Mixing these up can lead to incorrect tax calculations.

Mistake #4: Forgetting Nominee Distributions

If you received interest or dividends on behalf of someone else, you can't just omit them from your return. Report the full amount, then use the subtraction method described in the instructions. You must give the actual owner a Form 1099-INT or Form 1099-DIV (unless the owner is your spouse) and file Forms 1096 and 1099 with the IRS.

Mistake #5: Missing Seller-Financed Mortgage Details

If you held a mortgage where you financed someone's purchase of a personal residence, you must list the buyer's name, address, and SSN first on line 1. You also must let the buyer know your SSN. Missing this information can result in a $50 penalty and raises red flags with the IRS.

Mistake #6: Including Tax-Exempt Interest

Municipal bond interest is tax-exempt and shouldn't be reported on Schedule B at all. It goes directly on Form 1040 line 2a. Tax-exempt interest generally should be shown in box 8 of Form 1099-INT. Also include any exempt-interest dividends from a mutual fund or other regulated investment company (shown in box 11 of Form 1099-DIV) on Form 1040 line 2a. IRS

What Happens After You File

If Everything Matches

Once you file Schedule B with your 2018 Form 1040, the IRS enters your return into its processing system and performs automated matching. The IRS computers compare the amounts you reported against the Forms 1099 that banks, brokerages, and companies filed about you. This matching typically occurs several months after you file. You'll likely hear nothing from the IRS, which is good news. Your reported interest and dividend income aligned with what financial institutions reported, and your return proceeds through normal processing.

If There’s a Mismatch

The IRS sends a CP2000 notice, typically 12–18 months after filing. This "proposed changes" notice isn't technically an audit, but it indicates the IRS found income you didn't report or amounts that don't match their records. You'll have an opportunity to respond, provide documentation, or accept the proposed changes and pay additional tax.

Foreign Account Compliance

If you disclosed foreign accounts in Part III, the IRS may cross-reference your Schedule B with your FinCEN Form 114 filing to ensure consistency. Discrepancies between these forms can trigger inquiries. If you're required to file FinCEN Form 114 but don't properly do so, you may have to pay civil penalties as described earlier.

Refund Timing

Schedule B itself doesn't delay your refund processing, but complexity in your return might. Most 2018 returns with Schedule B were processed within the standard timeframe (21 days for e-filed returns, 6–8 weeks for paper returns).

Statute of Limitations

For properly filed returns, the IRS generally has three years from the filing date to assess additional tax. However, if you substantially understated income (by more than 25%), the period extends to six years. For unfiled FBARs or foreign account non-disclosure, there may be no statute of limitations.

FAQs

Q1: I received exactly $1,500 in interest. Do I need Schedule B?

No. The requirement kicks in when you have "over $1,500," so $1,500.00 exactly means Schedule B is optional. However, if you have $1,500.01 or more, you must file it. When you're at or near the threshold, filing Schedule B anyway can provide clear documentation.

Q2: What if I forgot to include a Form 1099-INT showing $50 in interest, but I already filed?

If including that $50 would push you over $1,500 (requiring Schedule B) or if you didn't report the income at all, you should file an amended return (Form 1040X). If you properly reported the interest elsewhere and weren't required to file Schedule B, the IRS matching system will likely clear it automatically, though they may send a notice asking for clarification.

Q3: I have a foreign bank account with $5,000. Do I need to file anything special?

Yes, you must answer "Yes" to Question 1 in Part III of Schedule B. However, since your account didn't exceed $10,000 at any time during 2018, you're not required to file FinCEN Form 114 (answer "No" to Question 2). Still, you must list the country on line 7b. Don't skip this—failure to disclose can result in substantial penalties.

Q4: Can I group multiple accounts from the same bank together on line 1?

Yes. You can list more than one payer on each entry space for lines 1 and 5, but be sure to clearly show the amount paid next to each payer's name. If you need more space, you can attach separate statements using the same format as lines 1 and 5, but show your totals on Schedule B.

Q5: I received a Form 1099-DIV showing both ordinary and qualified dividends. Which amount goes on Schedule B?

Only report the ordinary dividend amount from box 1a on Schedule B line 5. Qualified dividends are reported elsewhere on your tax return, not on Schedule B. Box 1a typically includes the box 1b amount, so don't double-count.

Q6: My spouse and I file jointly. We both had foreign accounts. How do we answer Part III?

Check "Yes" to Question 1 if either spouse had a foreign account. For Question 2, check "Yes" if the combined aggregate value of all foreign accounts (both spouses) exceeded $10,000 at any point during 2018. You can file one joint FinCEN Form 114 listing both spouses' accounts, or each spouse can file separately.

Q7: I excluded savings bond interest for education expenses using Form 8815. Do I still report it on Schedule B?

Yes. Report the full interest amount on Schedule B line 2, then use line 3 to indicate the exclusion and reduce your taxable interest on line 4. The exclusion doesn't eliminate the reporting requirement—it just reduces the taxable amount. You may be able to exclude part or all of the interest on Series EE or I U.S. savings bonds issued after 1989 if you cashed them in 2018 and paid qualified higher education expenses for yourself, your spouse, or your dependents. See Form 8815 for details. IRS

Sources

All information sourced from official IRS publications for tax year 2018. For current-year requirements, always consult the latest IRS guidance at IRS.gov/ScheduleB.