Form 1099-OID: Original Issue Discount (2011) – A Complete Guide

Form 1099-OID is an information return that reports Original Issue Discount (OID) income to taxpayers and the IRS. If you received this form in 2011, it means you held certain debt instruments—such as bonds, certificates of deposit, or Treasury obligations—that were issued at a price lower than their redemption value at maturity. Understanding this form is crucial because OID is taxable as interest income even if you haven't received cash payments yet.

What Form 1099-OID Is For

Form 1099-OID serves as an official record of Original Issue Discount income earned during the 2011 calendar year. According to the IRS 2011 Instructions, OID is "the excess of an obligation's stated redemption price at maturity over its issue price."

In simpler terms, when a company or government entity issues a bond or certificate at a discount—meaning you pay less than the face value—the difference between what you paid and what you'll receive at maturity is treated as interest income that accrues over the life of the obligation.

Financial institutions, brokers, corporations issuing bonds, and other entities must file Form 1099-OID when the OID includible in your gross income is at least $10 for the year. The form also reports any foreign tax paid on OID or federal income tax withheld under backup withholding rules.

Common Situations Where You’d Receive Form 1099-OID

• Holding certificates of deposit (CDs) issued with a term exceeding one year at a discounted price
• Owning corporate bonds purchased below face value
• Holding U.S. Treasury obligations with OID
• Investing in certain REMIC (Real Estate Mortgage Investment Conduit) regular interests
• Owning zero-coupon bonds that pay no periodic interest

When You’d Use Form 1099-OID (Late/Amended Filing)

For the 2011 tax year, payers were required to furnish Copy B of Form 1099-OID to recipients by January 31, 2012. They had to file Copy A with the IRS by February 28, 2012, for paper filing, or April 2, 2012, if filing electronically.

For Recipients (Taxpayers)

If you discover you failed to report OID income from 2011, you should file an amended return using Form 1040X (Amended U.S. Individual Income Tax Return). Generally, you have three years from the original filing deadline to amend your return. For 2011 returns, this meant you had until April 15, 2015, to file an amended return.

For Payers (Issuers)

If a financial institution or issuer needs to correct Form 1099-OID information, they must file a corrected form by checking the “CORRECTED” box at the top. According to the 2011 General Instructions for Certain Information Returns, corrected forms should be filed as soon as possible after discovering the error.

Key Rules for 2011

Several important rules governed Form 1099-OID reporting in 2011:

Reporting Threshold

Payers must file Form 1099-OID if the OID includible in gross income is at least $10, or for any amount if foreign tax was withheld or backup withholding applied.

Backup Withholding

If you failed to provide a correct Taxpayer Identification Number (TIN), the payer was required to withhold federal income tax at a 28% rate on OID payments. This amount would appear in Box 4.

Truncation Ended

Starting in 2011, the pilot program allowing truncation of taxpayer identification numbers on paper statements ended. All forms had to show complete identifying numbers.

De Minimis Rule

A discount of less than ¼ of 1% of the stated redemption price at maturity, multiplied by the number of full years from issue to maturity, is considered zero and doesn't need to be reported.

Nominee Reporting

If you received a Form 1099-OID for amounts belonging to someone else, you're considered a “nominee” and must complete a separate Form 1099-OID for the actual owner and file it with the IRS.

Step-by-Step: How to Handle Your Form 1099-OID

Step 1: Review Your Form

When you receive Form 1099-OID, verify all information is correct—your name, address, TIN, and the amounts reported in each box.

Step 2: Understand the Boxes

• Box 1: OID for 2011 (report as interest income on your tax return)
• Box 2: Other periodic interest (also report as interest income)
• Box 3: Early withdrawal penalty (deductible on Form 1040)
• Box 4: Federal income tax withheld (claim as tax paid)
• Box 6: OID on U.S. Treasury obligations (exempt from state/local taxes)

Step 3: Check If Adjustments Are Needed

The amount in Box 1 may not always be the exact figure you need to report. If you purchased the obligation at a premium, paid acquisition premium, or bought it as a stripped bond, you may need to calculate adjustments using IRS Publication 1212, Guide to Original Issue Discount (OID) Instruments.

Step 4: Report on Your Tax Return

Report OID as interest income on Schedule B (Form 1040) if your total interest and dividends exceed $1,500, or directly on Form 1040 Line 8a if under that threshold.

Step 5: File Supporting Documentation

Keep Form 1099-OID with your tax records for at least three years in case of an IRS audit.

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting OID Because You Didn’t Receive Cash

Many taxpayers incorrectly think OID isn't taxable until they receive payment at maturity.
Solution: Always report the amount shown in Box 1 as interest income.

Mistake #2: Reporting the Wrong Amount

Simply copying the Box 1 amount may be incorrect if you purchased the obligation mid-year, paid a premium, or bought it on the secondary market.
Solution: Consult IRS Publication 1212 or a tax professional to determine the correct OID amount for your specific situation.

Mistake #3: Missing the Early Withdrawal Penalty Deduction

If you cashed in a CD early and Box 3 shows a penalty, you're entitled to deduct this amount.
Solution: Report the penalty on Form 1040 as an adjustment to income—don’t reduce the interest reported.

Mistake #4: Ignoring State Tax Exemptions

OID on U.S. Treasury obligations (Box 6) is exempt from state and local income taxes, but many taxpayers fail to claim this benefit on their state returns.
Solution: Check your state's specific instructions for reporting federally taxable but state-exempt interest.

Mistake #5: Failing to Report as a Nominee

If you hold an obligation jointly or for someone else, you must file a nominee Form 1099-OID for the other owner(s).
Solution: Complete Form 1099-OID showing yourself as payer and the actual owner as recipient, and file it with Form 1096 by the deadline.

What Happens After You File

After you properly report Form 1099-OID income on your 2011 tax return:

IRS Matching

The IRS uses an automated system to match the income you report on your tax return with information from Forms 1099-OID filed by payers. Discrepancies may trigger a notice or audit.

Refund or Payment

If Box 4 shows backup withholding, you'll receive credit for that amount when you file your return, potentially increasing your refund or reducing your tax due.

Carryforward Basis

OID you report as income increases your tax basis in the obligation. When you eventually sell or redeem it, this higher basis reduces your capital gain or increases your capital loss.

State Returns

Remember to file your state income tax return, taking advantage of any exemption for U.S. Treasury OID shown in Box 6.

Record Retention

Keep Form 1099-OID and related documentation until the statute of limitations expires—generally three years after filing, or longer if certain conditions apply.

FAQs

Q1: What if I Never Received Form 1099-OID but Should Have?

Contact the issuer immediately to request a copy. Don’t wait—you’re still required to report the income even if you didn’t receive the form. You can estimate the OID using IRS Publication 1212 or consult the issuer.

Q2: Do I Have to Report OID if the Amount Is Less Than $10?

Technically, yes. Even though payers aren’t required to issue Form 1099-OID for amounts under $10, all interest income—including OID—is taxable and should be reported if you have records of it.

Q3: What’s the Difference Between Box 1 and Box 6?

Box 1 shows OID on most obligations, while Box 6 specifically reports OID on U.S. Treasury obligations. The distinction matters because Treasury OID is exempt from state and local income taxes, but both are subject to federal income tax.

Q4: Can I Deduct the OID if I Sell the Bond Before Maturity?

No, you cannot deduct OID. However, the OID you’ve already reported as income increases your cost basis in the bond. When you sell, you'll calculate your capital gain or loss using this adjusted basis.

Q5: What if the Information on My Form 1099-OID Is Incorrect?

Contact the issuer immediately and request a corrected form. Don’t file your tax return with incorrect information—wait for the corrected Form 1099-OID, which will have the “CORRECTED” box checked.

Q6: Do I Need Form 1099-OID for U.S. Savings Bonds?

No. Interest on U.S. Savings Bonds (Series EE, Series I) is generally reported on Form 1099-INT, not Form 1099-OID, because they’re specifically excluded from OID reporting requirements. However, some Treasury bonds with maturities over one year may generate Form 1099-OID.

Q7: Where Can I Find Detailed OID Calculations for My Specific Bond?

The IRS publishes Publication 1212 (Guide to Original Issue Discount Instruments), which includes comprehensive tables of OID amounts for publicly offered debt instruments. You can also contact your broker or the bond issuer for specific calculations.

Sources

• IRS Form 1099-OID (2011)
• Instructions for Forms 1099-INT and 1099-OID (2011)
• General Instructions for Certain Information Returns (2011)

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