Form 1099-INT Interest Income: Your 2013 Guide
What the Form Is For
Form 1099-INT is an official IRS information return that reports interest income you received during the tax year. Think of it as a receipt showing how much interest various financial institutions paid you—whether from bank accounts, bonds, or other interest-bearing investments.
Banks, credit unions, savings and loan associations, and other financial institutions must send you this form if they paid you at least $10 in interest during 2013. The form isn't just for your records; a copy also goes to the IRS, which uses it to verify the income you report on your personal tax return IRS.gov.
Key information reported on Form 1099-INT includes taxable interest (Box 1), interest from U.S. Savings Bonds and Treasury obligations (Box 3), tax-exempt interest from municipal bonds (Box 8), and any federal tax withheld through backup withholding (Box 4). If you withdrew money early from a certificate of deposit and paid a penalty, that appears in Box 2—and the good news is you can deduct it.
When You’d Use It (Late/Amended)
For Recipients (Taxpayers)
If you discover you forgot to report interest income from a 1099-INT after filing your tax return, you'll need to file an amended return using Form 1040-X. The IRS generally allows three years from the original filing deadline to amend your return. If you realize the error before the IRS catches it, filing an amended return promptly can help you avoid penalties and additional interest charges IRS.gov.
For Payers (Financial Institutions)
Institutions that discover they issued an incorrect Form 1099-INT must file a corrected version. The form should be marked "CORRECTED" at the top. For 2013, payers had until January 31, 2014, to furnish forms to recipients and until February 28, 2014 (or March 31, 2014 if filing electronically) to submit them to the IRS IRS.gov.
Late filing by payers triggers penalties that escalate based on how late the form is: $60 per form if filed within 30 days late, $130 if filed 31 days through August 1, and $330 if filed after August 1 or not filed at all. Intentional disregard carries a minimum $660 penalty per form IRS.gov.
Key Rules for 2013
The $10 threshold is crucial: if a financial institution paid you at least $10 in interest during 2013, they were required to issue Form 1099-INT. However—and this is important—you must report ALL interest income on your tax return, even if it's less than $10 and you didn't receive a form IRS.gov.
Certain entities are exempt from receiving 1099-INT forms, including corporations, tax-exempt organizations, IRAs, health savings accounts, government agencies, and registered securities dealers. This exemption exists because these entities have different reporting requirements IRS.gov.
For the 2013 tax year, backup withholding was set at 28%. This means if you didn't provide your correct Social Security number or taxpayer identification number to the bank, they were required to withhold 28% of your interest payments and send it directly to the IRS IRS.gov.
Interest from U.S. Savings Bonds, Treasury bills, notes, and bonds is reported separately in Box 3 because while it's federally taxable, it's exempt from state and local income taxes—a significant benefit for residents of high-tax states IRS.gov.
Step-by-Step (High Level)
Step 1: Receive and Review
You should receive Form 1099-INT from each financial institution by January 31, 2014, for interest earned in 2013. Check that your name, Social Security number, and the interest amounts are correct. The form may show only the last four digits of your SSN for privacy protection, but the issuer reported your complete number to the IRS.
Step 2: Gather All Forms
Collect every 1099-INT you receive. If you have accounts at multiple banks or own various bonds, you'll likely receive multiple forms. Don't overlook smaller amounts—they all add up and must be reported.
Step 3: Report on Your Tax Return
If your total taxable interest is $1,500 or less, simply enter the total on Line 8a of Form 1040. If it exceeds $1,500, you must complete Schedule B (Form 1040), which requires you to list each payer and amount separately. Tax-exempt interest from Box 8 goes on Line 8b of Form 1040 IRS.gov.
Step 4: Claim Deductions
If Box 2 shows an early withdrawal penalty, you can deduct this amount when calculating your adjusted gross income—it reduces your taxable income dollar-for-dollar. If Box 4 shows backup withholding, report this as federal tax withheld on your return; it counts as a credit toward your tax liability.
Step 5: Keep Records
Retain all 1099-INT forms along with your tax return for at least three years. The IRS may request documentation if they have questions about your reported interest income.
Common Mistakes and How to Avoid Them
Mistake #1: Forgetting to report small amounts
Many taxpayers mistakenly believe that if they didn't receive a 1099-INT, they don't need to report the interest. Wrong! Even $5 of interest from a savings account is legally required to be reported. Check all your bank statements at year-end to identify any interest earned, regardless of whether you received a form.
Mistake #2: Missing the Schedule B requirement
If your total interest exceeds $1,500, you cannot simply enter the total on your 1040—you must file Schedule B listing each source. Failing to do so may trigger an IRS inquiry and potential penalties for incomplete filing.
Mistake #3: Reporting tax-exempt interest as taxable
Interest from municipal bonds (Box 8) should be reported on the "tax-exempt interest" line, not added to your taxable interest. While you still must disclose it (the IRS uses this information for certain calculations), you won't pay federal tax on it. Reporting it incorrectly could cause you to overpay taxes.
Mistake #4: Not claiming the early withdrawal penalty deduction
Box 2 shows penalties for early CD withdrawals. This is an "above-the-line" deduction, meaning you can claim it even if you don't itemize deductions. Many taxpayers overlook this valuable deduction that directly reduces their adjusted gross income.
Mistake #5: Nominee situations
If you receive a 1099-INT for interest that partially belongs to someone else (for example, a joint account where you're not the only owner, or you received interest on behalf of your child), you must file a nominee 1099-INT for the actual owner. Failure to do this means the IRS thinks you earned all the interest, potentially increasing your tax liability IRS.gov.
What Happens After You File
Once you file your tax return including your 1099-INT information, the IRS matches the amounts you reported against the forms they received from financial institutions. This matching process typically occurs within 18-24 months after you file.
If everything matches, you'll hear nothing—no news is good news. The IRS has confirmed your interest income reporting and processed your return normally.
If there's a discrepancy, you'll receive a CP2000 notice, which is not technically an audit but rather an "underreporter inquiry." This notice shows the difference between what you reported and what the IRS has on file. You'll have an opportunity to respond, either agreeing to the additional tax or providing documentation explaining the discrepancy. For example, you might have received a corrected 1099-INT that the IRS hasn't processed yet.
If you claimed backup withholding in Box 4, this amount is credited toward your total tax liability, just like regular income tax withholding from a paycheck. It may increase your refund or decrease the amount you owe.
For tax-exempt interest reported in Box 8, while you don't pay federal income tax on this amount, it can affect other parts of your return. It's included in the calculation of whether your Social Security benefits are taxable, and it may impact eligibility for certain credits or deductions IRS.gov.
FAQs
Q1: I earned $8 in interest but didn't receive a 1099-INT. Do I still need to report it?
Yes. While financial institutions aren't required to issue a 1099-INT for amounts under $10, you are legally obligated to report all interest income regardless of the amount. Simply list the bank name and interest amount when reporting your income IRS.gov.
Q2: I received a 1099-INT in February for the prior tax year I already filed. What should I do?
Late-arriving 1099-INT forms are frustratingly common. You must file an amended return (Form 1040-X) to report this additional income. The IRS allows you three years from the original filing deadline to amend without penalty, though you should do so as soon as possible to minimize interest charges on any additional tax owed.
Q3: What if my 1099-INT shows an incorrect amount?
Contact the issuer immediately to request a corrected form. They should issue a new 1099-INT marked "CORRECTED" with the accurate information. Use the corrected amount when filing your tax return, and keep documentation of your communication with the issuer in case the IRS questions the discrepancy.
Q4: Does tax-exempt interest from municipal bonds really mean no taxes at all?
It means no federal income tax. However, you must still report it on your tax return in the designated space for tax-exempt interest. Additionally, some municipal bond interest may be subject to state taxes (if you bought bonds from another state) or the Alternative Minimum Tax (AMT) if they're "private activity bonds" reported in Box 9 IRS.gov.
Q5: Can I throw away my 1099-INT forms after I file my taxes?
No. Keep all 1099-INT forms for at least three years after filing your return. The IRS generally has three years to audit your return, and you'll need these documents if questions arise. If you underreported income by more than 25%, the IRS has six years to audit, so many tax professionals recommend keeping records even longer.
Q6: I received a 1099-INT from the IRS itself. What does that mean?
The IRS pays interest on tax refunds that are issued late. This interest is taxable income and must be reported on your return. Enter "IRS" as the payer name and report the amount as interest income. Yes, this means you pay tax on the interest the IRS paid you—a bit circular, but that's the law.
Q7: My bank says they'll issue a 1099-INT by January 31, but can I file my taxes before receiving it?
While you can file early if you know all your interest income amounts (check your December bank statements), it's generally safer to wait for the official forms. Banks sometimes discover errors or account for interest paid in late December that might not appear on your statement. Filing with incorrect information means you'll likely need to file an amended return later.
Sources
All information in this guide comes from official IRS publications for the 2013 tax year, including the 2013 Instructions for Forms 1099-INT and 1099-OID, Form 1099-INT (2013), and IRS guidance on interest income reporting and information return penalties.
