Form 1099-OID: Original Issue Discount (2018) – Your Complete Guide

Understanding tax forms doesn’t have to be complicated. This guide breaks down everything you need to know about Form 1099-OID for the 2018 tax year in plain English, using official information from the IRS.

What the Form Is For

Form 1099-OID reports original issue discount—a special type of interest income that accrues over time on certain debt instruments like bonds, notes, and certificates of deposit (CDs). Think of OID as “built-in interest”: the difference between what a bond costs when it’s issued and what you’ll get back when it matures.

Example:
If a company issues a bond that will pay $1,000 at maturity but sells it for $950, the $50 difference is original issue discount (OID). Even though you won’t receive the $50 until the bond matures, the IRS requires you to report part of that amount as income each year.

Who files and receives it:

• Issued by: Financial institutions, brokers, or bond issuers
• Received by: Investors who earned at least $10 in OID during the year

The IRS uses this form to ensure “phantom income” is properly reported—even if you didn’t actually receive any cash yet.

When You’d Use It (Late or Amended Filings)

For Recipients (Investors)

• You’ll receive Form 1099-OID by January 31, 2019 (for the 2018 tax year).
• If your form is missing or incorrect, contact the issuer right away to request a corrected version.
• You should still file your return on time, estimating your OID if necessary—you can amend later using Form 1040-X once you receive the corrected form.

For Issuers/Payers

• If you discover an error, file a corrected Form 1099-OID immediately by checking the “CORRECTED” box at the top and resubmitting to both the IRS and the recipient.
• Late filings (after Feb 28, 2019 for paper or Apr 1, 2019 for e-filing) may incur penalties, but it’s always better to file late than not at all.

Key Rules for 2018

• Reporting threshold: File if OID income is $10 or more, or if backup withholding occurred (even if OID < $10).
• Backup withholding rate: 24% (reduced from 28% under the 2017 Tax Cuts and Jobs Act).
• Covered vs. noncovered securities: For covered securities, issuers must report extra details such as acquisition premium and market discount.
• Filing deadlines:
  • Recipients: January 31, 2019
  • IRS (paper): February 28, 2019
  • IRS (electronic): April 1, 2019
  • E-filing was required for issuers filing 250+ forms.
• Nominee reporting: If you received OID that actually belongs to another investor, you must prepare a new Form 1099-OID showing them as the recipient.

Step-by-Step Filing (High Level)

For Recipients (Investors)

1. Receive your 1099-OID by January 31, 2019.
2. Review Box 1 — shows taxable OID income. Report this as interest on Schedule B (Form 1040).
3. Check other boxes:
   • Box 2 – Interest payments received during the year
   • Box 5 – Market discount
   • Box 6 – Acquisition premium
   • Box 10 – Bond premium
   • Box 8 – OID on U.S. Treasury obligations (state tax exempt)
   • Box 11 – Tax-exempt OID (not taxable, but reportable)
4. Adjust if needed: Use Publication 1212 to calculate adjustments for premiums or discounts.
5. Report and file with your Form 1040. Keep all related records for at least 3 years.

For Payers (Issuers or Brokers)

1. Identify all reportable debt instruments.
2. Calculate OID income for each investor for their holding period.
3. Complete all applicable boxes on Form 1099-OID.
4. Provide Copy B to recipients by January 31, 2019.
5. File Copy A (with Form 1096 if on paper) with the IRS by the appropriate deadline.

Common Mistakes and How to Avoid Them

1. Not reporting OID because you didn’t receive cash:
   • OID is taxable annually, even if you don’t get paid yet.
2. Incorrect OID amount for covered securities:
   • Adjust for acquisition or bond premium (see Boxes 6 and 10).
3. Wrong or missing TIN:
   • Causes automatic 24% backup withholding. Always verify your SSN/EIN with Form W-9.
4. Payers failing to e-file when required:
   • If you file 250+ returns, use the IRS FIRE system to e-file.
5. Ignoring nominee reporting rules:
   • If you received OID on someone else’s behalf, file a new 1099-OID for the actual owner.
6. Misreading box numbers:
   • Each box represents different income categories—read the instructions carefully or use tax software.

What Happens After You File

For Recipients

• The IRS matches your OID income with the issuer’s submission.
• The income increases your Adjusted Gross Income (AGI) and may affect credits/deductions.
• Keep all records for three years. Discrepancies may trigger an IRS notice.

For Payers

• The IRS cross-references forms to ensure recipients report income properly.
• Failure to file correctly can lead to penalties from $50–$280 per form, up to $1,130,500 annually for large businesses.

Penalties

• Late, incorrect, or missing forms incur escalating penalties.
• Recipients who underreport face accuracy-related penalties (20%) plus interest.

Frequently Asked Questions (FAQs)

Q1: Do I owe tax on OID even though I didn’t receive any money?
Yes. You must report OID annually as it accrues, even without receiving payment.

Q2: What’s the difference between Box 1 and Box 8?
Box 1 – Taxable OID (corporate or private bonds).
Box 8 – OID on U.S. Treasury obligations (federally taxable, state exempt).

Q3: I sold my bond mid-year. How do I report OID?
Report the OID that accrued while you owned it. Your basis increases by that amount when calculating gain/loss on sale (Form 8949).

Q4: My 1099-OID shows Box 11 (tax-exempt OID). What does it mean?
This represents OID from municipal bonds—exempt from federal tax but may impact the Alternative Minimum Tax (AMT).

Q5: What does Box 6 (acquisition premium) mean?
If you bought a bond above its issue price but below face value, Box 6 shows the premium, reducing the amount of OID you must include in income.

Q6: I never received my 1099-OID—what should I do?
Request a copy from your bank or broker. If you still don’t have it by tax time, estimate using Publication 1212 and amend later if necessary.

Q7: Are any securities exempt from OID reporting?
Yes. Short-term obligations (one year or less), U.S. Savings Bonds, and private (non-publicly issued) notes are exempt, as are certain tax-exempt entities and IRAs.

Sources

All information in this guide comes directly from:

• 2018 Form 1099-OID and its Instructions
• IRS Publication 1212 (Guide to Original Issue Discount Instruments)
• 2018 General Instructions for Certain Information Returns
• IRS.gov Information Return Penalties Page

(All resources available at IRS.gov)

‍