Form 1099-INT Interest Income: 2016 Layman's Guide
What Form 1099-INT Is For
Form 1099-INT is a tax document that reports interest income you received during the 2016 calendar year. Think of it as a receipt from banks, credit unions, and other financial institutions showing how much interest they paid you. If you earned at least $10 in interest from a savings account, certificate of deposit (CD), money market account, or bonds, the payer must send you this form by January 31, 2017.
This form serves two purposes: it informs you how much interest income to report on your personal tax return, and it tells the IRS the same information so they can match it against what you report. The interest shown on Form 1099-INT is generally taxable income—meaning you'll owe taxes on it—though there are exceptions for certain tax-exempt bonds and U.S. Treasury obligations. IRS
The form contains multiple boxes that report different types of interest. Box 1 shows your regular taxable interest, Box 3 shows interest from U.S. Savings Bonds and Treasury obligations (which is exempt from state and local taxes), and Box 8 shows tax-exempt interest from municipal bonds. Even if you don't receive a Form 1099-INT because you earned less than $10, you're still legally required to report all interest income on your tax return.
When You’d Use Form 1099-INT (Late/Amended)
Filing Deadline and Amending Returns
The normal deadline for filing your 2016 tax return was April 18, 2017. If you discovered after filing that you forgot to include interest income from a Form 1099-INT you received (or should have received), you would need to file an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return.
You have up to three years from the date you filed your original 2016 return, or two years from the date you paid the tax, whichever is later, to file an amended return and claim a refund. For most people who filed their 2016 return by the April 2017 deadline, this means you had until April 15, 2020, to amend and still receive a refund. After that window closes, you can no longer claim a refund, though you can still file an amended return to correct errors if you owe additional tax. IRS
Why You Should Amend
You should file an amended return if you forgot to report interest income shown on a Form 1099-INT, especially if the amount is significant. The IRS receives copies of all Forms 1099-INT and uses automated systems to match this information against your tax return. If there's a mismatch, you'll likely receive a notice from the IRS proposing additional taxes, penalties, and interest charges. It's generally better to proactively file an amended return than to wait for an IRS notice.
Key Rules or Details for 2016
Reporting Thresholds and Deadlines
For the 2016 tax year, several important rules governed Form 1099-INT. Financial institutions were required to issue the form to you by January 31, 2017, if they paid you $10 or more in interest during the year. If you earned $600 or more in interest as part of a trade or business (rather than as a personal investment), the threshold and reporting requirements were different. IRS
Changes for 2016 (Bond Premium Boxes)
A significant change for 2016 was the addition of Box 12 to Form 1099-INT to report bond premium on U.S. Treasury obligations, and Box 11 for bond premium on other taxable securities. This meant that for covered securities (generally those acquired after 2013), payers had to track and report when you paid more than face value for a bond, and how that premium was amortized over time to offset your interest income.
Backup Withholding
The backup withholding rate for 2016 was 28%. This means if you didn't provide your correct taxpayer identification number (TIN) to your bank or financial institution, they were required to withhold 28% of your interest payments and send it directly to the IRS. This backup withholding would appear in Box 4 of your Form 1099-INT and could be claimed as a credit against your tax liability.
Exempt Recipients
Certain recipients were exempt from receiving Form 1099-INT, including corporations, tax-exempt organizations, individual retirement accounts (IRAs), and government entities. If you held an interest-bearing account in the name of your business corporation, you wouldn't receive this form because corporations file different types of tax returns.
Step-by-Step (High Level)
Step 1: Verify Your Form
When you receive Form 1099-INT, first verify that all the information is accurate—check that your name, address, and Social Security number are correct. Then examine each box to understand what type of interest income you received. Most people will primarily focus on Box 1 (taxable interest) and Box 3 (U.S. Savings Bonds and Treasury obligations).
Step 2: Gather All Forms and Totals
Next, gather all your Forms 1099-INT if you received interest from multiple sources—you might have several from different banks, credit unions, or investment accounts. Add up the total amounts from Box 1 across all forms, and separately add up amounts from Box 3. These totals will be reported on Schedule B (Interest and Ordinary Dividends) if your total interest income exceeds $1,500, or directly on Form 1040 if it's less than that amount.
Step 3: Report on Form 1040 / Schedule B
Report the Box 1 taxable interest amounts on Line 8a of your 2016 Form 1040, or complete Schedule B if required. Report U.S. Savings Bond and Treasury interest from Box 3 separately because while it's federally taxable, it's exempt from state and local taxes. If Box 8 shows tax-exempt interest, report this on Line 8b of Form 1040—you must report it even though it's not taxable because the IRS tracks this information for other purposes, including calculating your alternative minimum tax liability.
Step 4: Account for Penalties and Withholding
If Box 2 shows an early withdrawal penalty (such as from cashing in a CD before maturity), you can deduct this amount on your tax return to reduce your taxable income. Box 4 shows any federal income tax that was withheld from your interest payments; include this on your return as a credit toward your tax liability, just like you would with tax withheld from wages.
Common Mistakes and How to Avoid Them
Failing to Report All Forms 1099-INT
One of the most frequent mistakes is simply failing to report all Forms 1099-INT. Many people forget about small accounts at credit unions or interest on security deposits. Keep careful records throughout the year, and in January, make a checklist of all financial institutions where you might earn interest. Don't assume that because you didn't receive a form, you don't need to report the income—the $10 threshold is only for reporting, not for taxation. IRS
Mishandling Nominee Situations
Another common error involves nominee situations. If you're listed on a joint account but the interest really belongs to someone else (like your elderly parent whose account you help manage), you're considered a "nominee" and must issue your own Form 1099-INT to the actual owner and file it with the IRS. Many people incorrectly report all the interest on their own return instead, which inflates their taxable income.
Reporting Early Withdrawal Penalties Incorrectly
Taxpayers frequently mishandle early withdrawal penalties shown in Box 2. The mistake is reducing the interest income reported on their return—you should report the full amount from Box 1 as income, then take a separate deduction for the early withdrawal penalty on Form 1040. These are two separate line items on your tax return, and confusing them can trigger IRS notices.
Omitting or Misreporting Tax-Exempt Interest
People also make mistakes with tax-exempt interest in Box 8. While this interest isn't taxable for federal purposes, you still must report it on your tax return. Failing to do so can trigger IRS inquiries because they receive a copy showing this interest was paid to you. Additionally, some taxpayers forget that specified private activity bond interest (Box 9) may be subject to the alternative minimum tax even though it's generally tax-exempt.
Incorrect or Missing TIN (Triggering Backup Withholding)
Finally, be careful with your taxpayer identification number (TIN). If your bank has an incorrect Social Security number on file, they're required to begin backup withholding, and you'll receive less interest income. Always verify that your financial institutions have your correct TIN to avoid this 28% withholding.
What Happens After You File
IRS Matching Process
Once you file your 2016 tax return including the interest income from Form 1099-INT, the IRS processes your return through their automated matching system. They compare the interest amounts you reported against the copies of Forms 1099-INT that financial institutions submitted directly to them. If everything matches correctly, your return is processed normally, and if you're due a refund, you typically receive it within 21 days of filing electronically.
Mismatches and CP2000 Notices
If there's a mismatch—for example, if you forgot to report a Form 1099-INT or entered an incorrect amount—the IRS's computers will flag your return. Months later (often 6–18 months after you filed), you'll receive a CP2000 notice, which is a proposed adjustment to your tax return. This notice explains that the IRS has income information that doesn't match what you reported, shows the proposed additional tax owed, and includes penalty and interest charges.
Responding to IRS Notices
When you receive a CP2000 notice, you have the right to respond. If the IRS is correct and you did forget to report interest income, you can agree to the proposed changes and pay the additional tax. If you believe the IRS is mistaken, you can provide documentation explaining why—for instance, if you received a corrected Form 1099-INT that the IRS hasn't yet processed, or if the interest was actually paid to someone else and you were merely a nominee.
Statute of Limitations
The IRS typically takes 1–3 years to assess additional tax based on unreported Form 1099-INT information, but they have up to three years from when you filed your return (or six years if they believe you underreported income by more than 25%). After the statute of limitations expires, they can no longer assess additional tax for that year.
FAQs
Do I have to report interest under $10?
Yes. While financial institutions aren't required to send you a Form 1099-INT for amounts under $10, you're still legally obligated to report all interest income on your tax return, even if it's just a few dollars. Keep your own records of interest from accounts that fall below the reporting threshold.
What if I receive a Form 1099-INT after I've already filed my tax return?
If you receive a late Form 1099-INT showing interest income you didn't report on your 2016 return, you should file an amended return using Form 1040-X to report the additional income. This is better than waiting for the IRS to send you a notice, as you'll avoid some penalties and interest charges. IRS
Is interest from my savings account really taxable?
Yes, most interest income is taxable. Interest from regular savings accounts, checking accounts, CDs, money market accounts, and most bonds is taxable at your ordinary income tax rate. The main exceptions are interest from municipal bonds (Box 8) and interest earned in tax-advantaged accounts like IRAs and 401(k)s (which isn't reported on Form 1099-INT).
What's the difference between Box 1 and Box 3 interest?
Box 1 shows regular taxable interest from most sources. Box 3 specifically shows interest from U.S. Savings Bonds and Treasury obligations (T-bills, T-notes, T-bonds). While both are federally taxable, the interest in Box 3 is exempt from state and local income taxes, which can save you money if you live in a state with income tax.
Can I avoid backup withholding?
Yes, by providing your correct taxpayer identification number (usually your Social Security number) to all financial institutions where you have accounts. Complete Form W-9 when opening accounts to certify your TIN. Once backup withholding has started due to an incorrect TIN, you must resolve the issue with the IRS and then provide a new Form W-9 with the correct information to stop the withholding.
What if I held a joint account but should only report half the interest?
If you held a joint account with someone who isn't your spouse, the financial institution typically reports all the interest under the first person's Social Security number. You can either report all the interest and let the other person report nothing, or you can each report your share. If you choose the latter, you must file a nominee Form 1099-INT showing the other person's portion, which prevents the IRS from thinking you've underreported income.
Do I need to keep my Form 1099-INT after I file my taxes?
Yes, keep all Forms 1099-INT and supporting tax documents for at least three years after filing your return (or longer if you have special circumstances). The IRS recommends keeping tax records for three years, which is generally how long they have to audit your return or you have to amend it and claim a refund.
