What the Form Is For

Schedule B is an attachment to your main Form 1040 tax return that helps you report interest and dividend income you received during the year. Think of it as a detailed breakdown that shows the IRS exactly where your investment and savings income came from. While most taxpayers simply enter their interest and dividends directly on Form 1040, Schedule B becomes necessary when you cross certain thresholds or have special situations.

This two-page form serves three main purposes: First, Part I lists all sources of taxable interest you earned (from savings accounts, bonds, CDs, and other investments). Second, Part II details your ordinary dividend income from stocks, mutual funds, and similar investments. Third, Part III asks important questions about whether you have foreign financial accounts or connections to foreign trusts—critical information the IRS uses to ensure compliance with international reporting requirements.

Schedule B doesn't change your tax bill directly; rather, it provides documentation supporting the interest and dividend totals you report on your main return. The totals from Schedule B flow to specific lines on Form 1040, where they're combined with your other income to calculate your tax liability.

When You'd Use It (Including Late or Amended Returns)

Regular Filing: You must file Schedule B with your 2020 Form 1040 if any of these situations apply to you:

• You earned more than $1,500 in taxable interest or ordinary dividends during 2020
• You received interest from a seller-financed mortgage where the buyer used the property as their personal residence
• You have accrued interest from a bond that needs special reporting
• You're reporting original issue discount (OID) that differs from what's shown on your Form 1099-OID
• You're reducing interest income due to amortizable bond premium
• You're claiming the exclusion for Series EE or I U.S. savings bond interest used for education
• You received interest or dividends as a "nominee" (meaning in your name, but actually belonging to someone else)
• You had any financial interest in or signature authority over foreign financial accounts, or received distributions from foreign trusts

Late or Amended Returns: If you discover you should have filed Schedule B but didn't, or if you made errors on the schedule, you can file an amended return using Form 1040-X. For tax year 2020, you generally have until April 15, 2024 (three years from the April 15, 2021 deadline) to amend your return and claim additional refunds. If you received interest or dividend information after filing your original return, or if you later realized you had foreign account reporting obligations, filing an amended return with the corrected Schedule B is important to avoid potential penalties.

The IRS offers penalty relief for certain 2020 returns, automatically waiving failure-to-pay penalties on assessed taxes under $100,000. However, this doesn't excuse missing required disclosures about foreign accounts—those carry separate, substantial penalties.

Key Rules for 2020

The $1,500 Threshold

This is the magic number. If your combined taxable interest and ordinary dividends total $1,500 or less, you can skip Schedule B entirely and report these amounts directly on Form 1040, lines 2b and 3b. Once you cross $1,501, Schedule B becomes mandatory.

What Must Be Listed

Every payer who sent you $1,500 or more in interest or dividends must be individually listed by name with the specific amount. If you have multiple small payers, you can group those together as long as you still show the breakdown.

Seller-Financed Mortgage Special Rule

If you sold property and the buyer is using it as their personal residence, you must report this interest first on Schedule B—even if it's under $1,500. You're also required to provide the buyer's name, address, and Social Security number. Failing to do so can result in a $50 penalty. This rule helps the IRS verify that the buyer is properly deducting their mortgage interest.

Foreign Account Reporting

Part III of Schedule B has two critical questions. Question 1 asks if you had a financial interest in or signature authority over foreign financial accounts at any time during 2020. You must check "Yes" if this applies, even if you're not required to file the separate FinCEN Form 114 (FBAR). Question 2 asks if the combined value of all foreign accounts exceeded $10,000 at any time during the year—if yes, you must file the FBAR separately (not attached to your tax return) by the filing deadline.

Foreign financial accounts include bank accounts, brokerage accounts, mutual funds, and even insurance policies with cash value held outside the United States. The penalties for failing to report these can be severe: civil penalties 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.

Nominee Situations

If you received a Form 1099-INT or 1099-DIV that includes income actually belonging to someone else (common with joint accounts or accounts held for others), you report the full amount, then subtract the nominee portion with a clear notation. You must also issue Form 1099 to the actual owner and file it with the IRS.

Step-by-Step (High Level)

Step 1: Gather Your Documents

Collect all Forms 1099-INT (interest income), Forms 1099-OID (original issue discount), and Forms 1099-DIV (dividend income) from banks, brokerages, and other financial institutions. Most arrive by early February, but wait until mid-February to ensure you've received everything.

Step 2: Complete Part I (Interest)

List each payer's name and the interest amount on separate lines. If you received interest as a nominee for someone else, include it in the total, then subtract it with a "Nominee Distribution" notation. For seller-financed mortgages where the buyer uses the property as a personal residence, list this interest first and include the buyer's identifying information. Add up all amounts and enter the total on line 2.

Step 3: Complete Part II (Ordinary Dividends)

Similar to Part I, list each payer of ordinary dividends and the amounts from box 1a of your Forms 1099-DIV. Handle any nominee distributions the same way. Total everything on line 6.

Step 4: Complete Part III (Foreign Accounts and Trusts)

Carefully answer the two questions on line 7a. For Question 1, check "Yes" if you had any foreign financial account or signature authority during 2020. For Question 2, check "Yes" only if you're required to file FinCEN Form 114—generally when the combined value of all foreign accounts exceeded $10,000 at any time during the year. On line 7b, list the countries where your accounts were located. Answer line 8 if you received distributions from, or were a grantor of, a foreign trust.

Step 5: Transfer Totals to Form 1040

The amount from Schedule B, line 2 (total interest) goes to Form 1040, line 2b. The amount from line 6 (total ordinary dividends) goes to Form 1040, line 3b. Attach Schedule B to your complete return.

Step 6: File Separately Required Forms

If you checked "Yes" to Question 2 on line 7a, you must separately file FinCEN Form 114 electronically through the Financial Crimes Enforcement Network's BSA E-Filing System by the tax deadline (with automatic extension to October 15). Do not attach it to your tax return.

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting to File Schedule B When Required

Many taxpayers wrongly assume they don't need Schedule B because tax software automatically enters their interest and dividends on Form 1040. But if you meet any of the filing requirements (especially the $1,500 threshold or foreign accounts), Schedule B must be attached. Fix: Before filing, double-check your total interest and dividends. Add up box 1 from all Forms 1099-INT and box 1a from all Forms 1099-DIV—if it exceeds $1,500, you need Schedule B.

Mistake #2: Omitting Small Payers

Some taxpayers list only their largest interest or dividend sources, forgetting smaller accounts. Fix: Include every source, no matter how small. You can list multiple small payers on one line (e.g., "Various payers under $50 each"), but every dollar must be accounted for.

Mistake #3: Failing to Report Foreign Accounts

The most costly mistake is not checking "Yes" on Part III when you have foreign accounts or not filing the required FinCEN Form 114. Many taxpayers don't realize that even small foreign bank accounts trigger these requirements. Fix: If you had any foreign financial account during 2020—even if you opened and closed it mid-year—you must disclose it on Part III. Set a reminder to file FinCEN Form 114 separately by the deadline.

Mistake #4: Incorrect Nominee Reporting

When reporting nominee distributions, taxpayers often simply exclude the income rather than following the proper "report then subtract" method. Fix: Always report the full amount from the Form 1099 first, then show the nominee distribution as a subtraction with clear labeling. Issue Forms 1099 to the actual owners and file copies with the IRS.

Mistake #5: Missing Seller-Financed Mortgage Information

Taxpayers who sold property with owner financing sometimes forget to include the buyer's SSN and address, triggering the $50 penalty. Fix: Create a file when you finance a sale that includes all buyer information. Report this interest prominently on Schedule B Part I with complete buyer details.

Mistake #6: Math Errors and Typos

Simple addition mistakes or transposed numbers cause processing delays. Fix: File electronically whenever possible—tax software does the math automatically and catches many common errors. If filing by paper, double-check all calculations with a calculator.

What Happens After You File

Immediate Processing

Once you file your 2020 return with Schedule B attached, the IRS enters it into their system. Electronically filed returns typically process within 21 days, while paper returns take much longer (often 6-8 weeks or more). The IRS computers automatically match your reported interest and dividends against the Forms 1099-INT and 1099-DIV that financial institutions filed.

Document Matching

The IRS uses sophisticated algorithms to compare what you reported on Schedule B with what banks and brokerages reported to them. If everything matches, your return continues processing smoothly. Discrepancies trigger notices—usually a CP2000 "Underreporter Inquiry" sent 12-18 months after filing, proposing additional tax if you underreported income.

Foreign Account Verification

Part III information undergoes special scrutiny. The IRS cross-references your Schedule B disclosures with separately filed FinCEN Forms 114, Forms 8938 (Statement of Specified Foreign Financial Assets), and information received through international tax treaties. Failing to report foreign accounts can trigger audits and penalties years later, as the statute of limitations extends when foreign assets are involved.

Refund or Balance Due

The interest and dividends reported on Schedule B contribute to your overall tax calculation. If they result in additional tax owed beyond what was withheld, you'll need to pay the difference. If you've overpaid, the IRS will issue your refund. You can check your refund status using the "Where's My Refund?" tool on IRS.gov after 24 hours for e-filed returns.

Audit Potential

Returns with Schedule B aren't necessarily more likely to be audited than others, but certain red flags increase scrutiny: large nominee distributions, seller-financed mortgages without proper buyer information, or checking "No" on foreign account questions when other information suggests you should have checked "Yes." Most Schedule B audits focus on foreign account compliance rather than the interest and dividend amounts themselves.

Record Retention

Keep your Schedule B and all supporting Forms 1099 for at least three years after filing (six years if you substantially underreported income, longer for foreign account issues). If the IRS questions your return, these documents prove your reporting was accurate.

FAQs

Q1: Do I need Schedule B if I only have one savings account that earned $2,000 in interest?

Yes. Even with just one payer, you must file Schedule B when your taxable interest exceeds $1,500. List your bank's name and the $2,000 amount on line 1, enter $2,000 on line 2, and transfer that amount to Form 1040, line 2b.

Q2: What's the difference between "ordinary dividends" on Schedule B and "qualified dividends" I've heard about?

Schedule B Part II reports all ordinary dividends from box 1a of Form 1099-DIV. Qualified dividends (from box 1b) are a subset of ordinary dividends that receive preferential lower tax rates. You report ordinary dividends from Schedule B on Form 1040, line 3b, but qualified dividends go on line 3a. Both must be reported, but qualified dividends get special tax treatment when you calculate your tax on the Qualified Dividends and Capital Gain Tax Worksheet.

Q3: I have a joint bank account with my elderly mother, but all the interest is reported under my Social Security number. How do I handle this?

Since the account is in your name but the funds belong partially or fully to your mother, you report the full interest amount on Schedule B, then subtract your mother's share as a "Nominee Distribution." You must also issue her a Form 1099-INT for her portion and file a copy with the IRS. This ensures she can properly report her share and you're not taxed on income that isn't yours.

Q4: I opened a bank account in Canada last year with $5,000. Do I need to report this on Schedule B even though I didn't earn much interest?

Yes, you must check "Yes" to Question 1 on line 7a because you had a financial interest in a foreign account during 2020. However, since the balance never exceeded $10,000, you'd check "No" to Question 2 and don't need to file the separate FinCEN Form 114. The interest earned must still be reported in Part I of Schedule B regardless of the amount. On line 7b, you'd list "Canada" as the country.

Q5: Can I file Schedule B electronically, or must it be mailed?

Schedule B can and should be filed electronically as part of your Form 1040. All major tax software packages support Schedule B. E-filing is faster, more secure, reduces errors, and gets you any refund quicker. The IRS strongly encourages electronic filing. Note that FinCEN Form 114 (FBAR), if required, must be filed separately through FinCEN's own electronic system—it's never attached to your tax return.

Q6: I received a Form 1099-INT showing $1,600 in interest, but $200 of it was accrued interest I paid when I bought a bond mid-year. Do I still need Schedule B?

Yes, you need Schedule B because the Form 1099 shows more than $1,500. However, you can properly account for the accrued interest you paid. Report the full $1,600 on Schedule B Part I, then subtract the $200 with a notation "Accrued Interest," resulting in $1,400 of actual taxable interest to you. You should have documentation showing the accrued interest you paid at purchase.

Q7: What happens if I discover in 2022 that I should have filed Schedule B with my 2020 return but didn't?

You should file an amended return using Form 1040-X as soon as possible. Attach the completed Schedule B showing all your interest and dividend income. If this correction results in additional tax owed, include payment with your amended return to minimize interest and potential penalties. The IRS may waive penalties if you have reasonable cause for the error and file the amendment before being contacted. For 2020 returns, you have until April 15, 2024 to file an amended return if you're claiming a refund.

Sources

• 2020 Instructions for Schedule B (Form 1040) — IRS.gov
• About Schedule B (Form 1040), Interest and Ordinary Dividends — IRS.gov
• Report of Foreign Bank and Financial Accounts (FBAR) — IRS.gov

Note: This guide provides general information about Schedule B for tax year 2020. Tax laws are complex and individual situations vary. For specific advice regarding your tax situation, consult a qualified tax professional or refer to official IRS publications.