Form 1099-INT Interest Income: Your 2018 Guide
What the Form Is For
Form 1099-INT is the official IRS document used to report interest income you earned during the tax year. Think of it as a receipt showing how much interest you received from banks, savings accounts, bonds, certificates of deposit (CDs), and other interest-paying investments. If you earned $10 or more in interest from a financial institution, you'll typically receive this form in the mail.
Banks, credit unions, brokers, and other financial institutions send Form 1099-INT to both you and the IRS. The form documents various types of interest including regular bank interest (Box 1), interest from U.S. Savings Bonds and Treasury obligations (Box 3), and tax-exempt interest from municipal bonds (Box 8). It may also show federal income tax withheld through backup withholding, early withdrawal penalties, and foreign taxes paid on your interest.
The form serves a dual purpose: it helps you accurately report your interest income on your tax return, and it allows the IRS to verify that taxpayers are reporting all their taxable income. Most interest is taxable at your ordinary income tax rate, though some municipal bond interest may be tax-exempt at the federal level.
When You’d Use (Late/Amended)
Financial institutions must furnish Form 1099-INT to recipients by January 31, 2019 for the 2018 tax year. If you didn't receive your form by mid-February, contact your financial institution directly to request a copy. You cannot file your tax return accurately without this information.
If you discover an error on your Form 1099-INT after you've already filed your tax return, don't panic. First, contact the issuer (your bank or financial institution) to request a corrected form. They will issue a corrected Form 1099-INT marked "CORRECTED" in the appropriate box. Once you receive the corrected form, you'll need to file an amended tax return (Form 1040-X) if the error affects your tax liability.
Late or amended Forms 1099-INT may be issued if the payer discovers they made an error, such as reporting the wrong interest amount, incorrect taxpayer identification number, or missing backup withholding information. Payers can issue corrected forms at any time when errors are discovered. The corrected form will show the correct information, and both you and the IRS receive copies. Financial institutions must act promptly when they discover errors to minimize penalties—they face $50 to $270 per incorrect form depending on how long it takes to correct the mistake.
Key Rules for 2018
For the 2018 tax year, several important rules governed Form 1099-INT reporting. The $10 threshold is the most fundamental: financial institutions must issue the form if you earned at least $10 in interest during the year. However, if you earned at least $600 in interest paid in the course of a trade or business (such as interest on business-related delayed payments), reporting is required even if it's from a non-traditional source.
Backup withholding was a critical 2018 rule change. Thanks to the Tax Cuts and Jobs Act, the backup withholding rate dropped from 28% to 24% effective January 1, 2018. Backup withholding occurs when you fail to provide a correct taxpayer identification number (TIN) to the payer or when the IRS notifies the payer that you underreported interest or dividend income. If backup withholding applies, the payer withholds 24% of your interest and sends it directly to the IRS—you'll see this amount in Box 4.
Exempt recipients don't receive Form 1099-INT even if they earn interest. This category includes corporations, tax-exempt organizations, individual retirement accounts (IRAs), health savings accounts (HSAs), government agencies, registered securities dealers, and brokers. If you're an individual with a personal savings account, you're not exempt and should expect the form.
Interest payment timing matters: interest is considered "paid" when it's credited to your account and available for withdrawal without substantial restrictions. For bonds and coupons, interest is paid when you present them for payment. Tax-exempt interest from municipal bonds must still be reported on Form 1099-INT (Box 8) even though you don't pay federal income tax on it—the IRS needs this information for other tax calculations like the alternative minimum tax.
Step-by-Step (High Level)
For Recipients (taxpayers)
Step 1: Receive the form
Receive the form by late January or early February 2019. Check your mail and online banking portal, as many institutions now offer electronic delivery.
Step 2: Review for accuracy
Verify that your name, address, and Social Security number are correct. Confirm the interest amounts match your records. Pay special attention to Box 1 (taxable interest), Box 3 (U.S. government interest), and Box 8 (tax-exempt interest).
Step 3: Report on your tax return
Transfer the amounts from Box 1 to the "taxable interest" line of your Form 1040. If you earned more than $1,500 in total interest and dividends, you'll also need to complete Schedule B, listing each payer separately. Box 3 amounts go on the same line but may have different state tax treatment. Box 8 (tax-exempt interest) goes on the separate "tax-exempt interest" line—it's not taxable federally but must still be reported.
Step 4: Keep with your tax records
Keep with your tax records for at least three years in case of an IRS inquiry or audit.
For Payers (financial institutions)
Step 1: Track all interest payments
Track all interest payments throughout the year to determine who meets the $10 reporting threshold.
Step 2: Verify taxpayer information
Confirm you have correct names, addresses, and TINs for all recipients. Apply backup withholding rules when required.
Step 3: Prepare and file
Prepare and file Forms 1099-INT by the deadlines: furnish to recipients by January 31, 2019, file with the IRS by February 28, 2019 (paper) or March 31, 2019 (electronic filing).
Step 4: Submit corrected forms
Submit corrected forms immediately if you discover errors.
Common Mistakes and How to Avoid Them
Missing the $10 threshold
Some taxpayers forget to report small amounts of interest because they assume amounts under $10 aren't taxable. Wrong! All interest income is taxable even if you don't receive a Form 1099-INT. If you earned $8 in interest, you're legally required to report it even though the bank didn't send you a form.
Incorrect taxpayer identification numbers
Payers often struggle with wrong Social Security numbers or name mismatches (such as using a maiden name on the account but a married name with the IRS). This triggers backup withholding and IRS notices. Always ensure your name and TIN match across all your accounts and match your Social Security card exactly.
Filing for exempt recipients
Financial institutions sometimes incorrectly issue Forms 1099-INT to corporations, IRAs, or other exempt entities. Payers should carefully review their recipient list against the exemption criteria before filing to avoid unnecessary paperwork and potential penalties.
Not reporting backup withholding
When 24% backup withholding applies, both payers and recipients make errors. Payers must report the withholding amount in Box 4, and recipients must claim this as a credit on their tax return just like regular tax withholding. Don't lose that 24%—it's your money paid to the IRS on your behalf.
Confusing taxable and tax-exempt interest
Taxpayers often mix up Box 1 (taxable) and Box 8 (tax-exempt) interest. Municipal bond interest goes in Box 8 and generally isn't subject to federal income tax, though it may be taxable at the state level and still counts toward your modified adjusted gross income for other purposes.
Missing the electronic filing requirement
Payers who file 250 or more information returns must file electronically. Filing on paper when electronic filing is required triggers penalties even if the forms are otherwise correct and timely.
Forgetting early withdrawal penalties
Box 2 shows penalties for early withdrawal from CDs and similar accounts. This amount is deductible from your gross income, but many taxpayers forget to claim it. Don't reduce the Box 1 amount yourself—report both separately and take the deduction on Schedule 1.
What Happens After You File
For recipients
Once you file your tax return with the Form 1099-INT information included, the IRS matches the amounts you reported against the forms filed by your financial institutions. This matching process typically happens several months after the April filing deadline. If there's a discrepancy—such as you reported $150 in interest but the IRS received Forms 1099-INT totaling $200—you'll receive a CP2000 notice proposing changes to your return and potentially additional tax owed.
If everything matches, you generally won't hear anything from the IRS regarding your interest income. The information simply becomes part of your tax record. Keep your Forms 1099-INT with your tax return documentation for at least three years in case of questions or an audit.
For payers
After filing Forms 1099-INT with the IRS by the February 28 or March 31 deadline, the IRS processes these returns and loads them into their matching system. If you made errors, you'll receive penalty assessments ranging from $50 to $270 per form depending on when you correct the mistakes:
- Within 30 days: $50 per form
- 30 days to August 1: $100 per form
- After August 1 or not corrected: $270 per form
If the IRS identifies incorrect taxpayer identification numbers, you'll receive a TIN Notice indicating which accounts have mismatches. After receiving two such notices within three years for the same account, you can check the "2nd TIN not." box on future forms to stop receiving additional notices for that account.
Penalties may be waived if you can demonstrate reasonable cause for errors—events beyond your control, significant mitigating factors, and evidence that you acted responsibly to avoid the problem. Simply being busy or short-staffed typically doesn't qualify as reasonable cause.
The IRS maintains these records as part of the permanent tax documentation for each taxpayer's account. Financial institutions should retain copies of all Forms 1099-INT and supporting documentation for at least four years to respond to any IRS inquiries or taxpayer disputes.
FAQs
Q1: I earned $9 in interest. Do I still need to report it even though I didn't get a Form 1099-INT?
Yes. All interest income is taxable regardless of the amount. While financial institutions only issue Form 1099-INT when you earn $10 or more, you're legally required to report even small amounts. Simply add up all your interest from various sources and report the total on your tax return.
Q2: Why did my bank withhold 24% of my interest payments?
This is called backup withholding, which occurs in specific situations: you didn't provide your taxpayer identification number to the bank, you provided an incorrect TIN, or the IRS notified your bank that you underreported interest or dividend income in past years. To stop backup withholding, contact your bank to correct your TIN information or resolve the underlying IRS issue.
Q3: I have both Box 1 and Box 8 amounts on my Form 1099-INT. Are they both taxable?
No. Box 1 shows taxable interest that you must include in your gross income and pay federal tax on. Box 8 shows tax-exempt interest (usually from municipal bonds) that is not subject to federal income tax. However, you must still report Box 8 amounts on your return—the IRS uses this information for various calculations including modified adjusted gross income and the alternative minimum tax.
Q4: What if I receive a corrected Form 1099-INT after I've already filed my tax return?
Contact the issuer to understand what changed. If the correction affects your tax liability (for example, the interest amount increased significantly), you'll need to file an amended return using Form 1040-X. If the change is minor and doesn't affect your tax owed, you may not need to amend, but consider consulting a tax professional to be certain.
Q5: Can I just combine all my Forms 1099-INT and report one total on my tax return?
If your total interest is $1,500 or less, yes—you can simply report the combined total on your Form 1040 taxable interest line. However, if your interest exceeds $1,500, you must complete Schedule B and list each payer separately with their name and the amount of interest paid. This requirement helps the IRS match your reporting to the Forms 1099-INT filed by your financial institutions.
Q6: I closed my CD early and paid a penalty. How do I handle the amount in Box 2?
Box 2 shows early withdrawal penalties that reduce your interest income. Report the full interest amount from Box 1 on your tax return's interest line, then claim the Box 2 penalty amount as a deduction on Schedule 1 (adjustments to income). Don't subtract the penalty from the Box 1 amount yourself—report both separately so you get the proper deduction.
Q7: My Form 1099-INT has my old address. Does it matter?
For the current tax year, it doesn't affect the validity of the form—the important information is your name, TIN, and the interest amounts. However, contact your financial institution to update your address for future correspondence and tax forms. If your name is incorrect or doesn't match your Social Security card, that's a bigger problem that could trigger backup withholding, so fix it immediately.
Document created from official IRS sources: This summary is based on the 2018 Instructions for Forms 1099-INT and 1099-OID and 2018 General Instructions for Certain Information Returns from IRS.gov.
