Schedule B (Form 1040): Interest and Ordinary Dividends – 2010 Tax Year Guide
What the Form Is For
Schedule B is an attachment to your Form 1040 or 1040A that you use to report detailed information about interest and dividend income you earned during the tax year. Think of it as an itemized list showing where your investment income came from—similar to how you'd track receipts for a business expense report.
You'll use this two-page form to list every bank, brokerage firm, or company that paid you interest or dividends during 2010. The form has three main sections: Part I tracks interest income (from savings accounts, bonds, CDs), Part II captures ordinary dividends (from stocks and mutual funds), and Part III asks important questions about foreign financial accounts and trusts.
Not everyone needs Schedule B. The IRS only requires it when your taxable interest or ordinary dividends exceeded $1,500 for the year. However, you must also file it in several other situations: if you received interest from a seller-financed mortgage where the buyer used the property as their personal residence, if you're reporting original issue discount differently than shown on your Form 1099-OID, if you're claiming the exclusion for Series EE or I U.S. savings bond interest used for education expenses, if you received interest or dividends as a nominee (meaning in your name but belonging to someone else), or if you had foreign financial accounts or certain dealings with foreign trusts.
When You'd Use Schedule B (Late or Amended Returns)
For the 2010 tax year, your original return was due April 18, 2011 (extended from April 15 due to the Emancipation Day holiday in Washington, D.C.). If you're filing a late return now, you'll need to include Schedule B if you met any of the filing requirements, even years after the deadline.
If you're filing an amended 2010 return using Form 1040X, you would attach a corrected or newly completed Schedule B if your situation requires it. Common reasons for amending with Schedule B include: discovering you forgot to report interest or dividend income that generated a 1099 form, realizing you should have answered "Yes" to the foreign account question in Part III, correcting errors in the amounts you originally reported, or adding the proper nominee distributions if you received income belonging to someone else.
Keep in mind that even though 2010 returns are now years old, the IRS generally allows three years from the filing deadline to claim a refund on an amended return. However, there's no time limit for the IRS to assess additional taxes if you never filed a required original return.
Key Rules for 2010
$1,500 Threshold
The $1,500 threshold is the primary rule: if your combined taxable interest and ordinary dividends totaled more than $1,500, you must file Schedule B. You cannot simply report the total on Form 1040 lines 8a and 9a—you must provide the detailed breakdown.
Foreign Account & Trust Questions (Part III)
Part III foreign account questions are mandatory if you meet certain conditions. Question 7a asks whether you had an interest in or signature authority over a financial account in a foreign country at any time during 2010. You must answer "Yes" if your foreign accounts' combined value exceeded $10,000 at any point during the year. Answering "Yes" also triggers a separate filing requirement: Form TD F 90-22.1 (FBAR—Report of Foreign Bank and Financial Accounts), which was due June 30, 2011, and filed separately with the Treasury Department, not attached to your tax return. Penalties for failing to file the FBAR could reach $10,000 or more.
Question 8 asks if you received a distribution from, or were a grantor or transferor to, a foreign trust. If yes, you may need to file Form 3520, which has additional filing requirements and deadlines.
Seller-Financed Mortgages
Seller-financed mortgages require special attention. If you sold property and carried back a mortgage where the buyer uses it as their personal residence, you must list this interest first on line 1, include the buyer's name, address, and Social Security Number, and you must also provide your SSN to the buyer. Failing to do so can result in a $50 penalty.
Forms 1099-INT and 1099-DIV
Forms 1099-INT and 1099-DIV are your source documents. These forms, issued by banks, brokers, and companies, show the interest and dividends you received. The amounts in box 1 of Form 1099-INT go to Schedule B Part I, and box 1a of Form 1099-DIV goes to Part II. Note that tax-exempt interest (Form 1099-INT box 8) doesn't get reported on Schedule B—it goes directly to Form 1040 line 8b.
Step-by-Step: How to Complete Schedule B (High Level)
Step 1: Gather your documents.
Collect all Forms 1099-INT (interest income) and 1099-DIV (dividends) that arrived in the mail from January through early February following the tax year. These forms are your roadmap.
Step 2: Complete Part I (Interest).
List each payer's name in the left column and the corresponding interest amount in the right column. If you received a Form 1099-INT from a brokerage firm covering multiple accounts or sources, you can list the brokerage's name once with the total. Add up all amounts and enter the total on line 2. If you're claiming the education savings bond exclusion, complete Form 8815 and enter the excludable amount on line 3. Subtract line 3 from line 2 and put the result on line 4—this amount also goes on Form 1040 line 8a.
Step 3: Complete Part II (Ordinary Dividends).
Follow the same process: list each payer's name and the ordinary dividend amount (from box 1a of Form 1099-DIV). Total everything on line 6, which also transfers to Form 1040 line 9a.
Step 4: Complete Part III (Foreign Accounts and Trusts).
Answer question 7a by checking "Yes" or "No" regarding foreign financial accounts. If "Yes," write the country's name on line 7b and remember you must file Form TD F 90-22.1 separately by June 30, 2011. Answer question 8 about foreign trusts; if "Yes," you likely need to file Form 3520.
Step 5: Attach to your return.
Schedule B goes behind Form 1040 in sequence number 08 (meaning it's one of the first schedules attached). Make sure your name and Social Security Number are at the top.
Common Mistakes and How to Avoid Them
Mistake #1: Not filing Schedule B when required.
Many taxpayers with slightly over $1,500 in interest/dividends assume they can skip the schedule and just report the total. The IRS computer systems match 1099 forms to returns, and missing Schedule B can trigger correspondence or delay your refund. How to avoid it: Add up your interest and dividends before filing. If the total exceeds $1,500, complete Schedule B.
Mistake #2: Including tax-exempt interest on Schedule B.
Tax-exempt interest (typically from municipal bonds, shown in Form 1099-INT box 8) doesn't belong on Schedule B Part I. How to avoid it: Report tax-exempt interest only on Form 1040 line 8b, not on Schedule B.
Mistake #3: Forgetting the foreign account questions.
Part III is easy to overlook, but leaving it blank or answering incorrectly when you had foreign accounts can lead to severe penalties, especially if you didn't file the required FBAR. How to avoid it: Review every account you had during 2010, including foreign bank accounts, investment accounts, or signature authority over business accounts. If the combined balance ever exceeded $10,000, answer "Yes" and file the FBAR.
Mistake #4: Omitting nominee distributions.
If you received a 1099 in your name but some or all of the income belongs to someone else (like a joint account where you're not the beneficial owner), you must still report the full amount but then subtract the nominee portion. How to avoid it: Follow the instructions carefully to create a subtotal, list "Nominee Distribution" as a separate line, and subtract it before entering the final total.
Mistake #5: Transposing numbers or math errors.
Simple addition mistakes or copying amounts incorrectly from 1099 forms delays processing. How to avoid it: Double-check each figure against your 1099 forms and use a calculator to verify totals.
Mistake #6: Missing the seller-financed mortgage details.
If you carried back financing on a home sale, failing to include the buyer's SSN can trigger penalties. How to avoid it: List this interest first, clearly show all required information, and communicate with the buyer to exchange SSNs.
What Happens After You File
Matching and Processing
Once you mail your return with Schedule B attached, the IRS computers match the interest and dividend amounts you reported against the 1099 forms filed by banks, brokers, and companies. This matching process typically takes several weeks to months.
Normal Processing Timeline
If everything matches, your return processes normally. If you claimed a refund, it should arrive within 6-8 weeks for paper returns (faster for e-filed returns, though Schedule B itself doesn't prevent e-filing).
If There's a Mismatch (CP2000 Notices)
If there's a mismatch—for example, the IRS received a 1099 that you didn't report—you'll receive a notice (often a CP2000) proposing additional tax, interest, and possibly penalties. You'll have an opportunity to respond, provide explanations, or correct the error.
Foreign Account Follow-Up
If you answered "Yes" to the foreign account question but the IRS doesn't see your FBAR filing with the Treasury Department, you may receive separate correspondence about potential FBAR penalties. These penalties are assessed separately from income tax and can be substantial.
Seller-Financed Mortgage Cross-Checks
For seller-financed mortgage interest, the IRS verifies that both you and the buyer are reporting the transaction correctly. The buyer should be claiming a mortgage interest deduction (if they itemize), while you're reporting the interest income.
Recordkeeping
Your Schedule B becomes part of your permanent tax record. If you're ever audited, the IRS will review Schedule B to verify you reported all income and that you properly answered the foreign account questions. Keep your 1099 forms and Schedule B with your tax records for at least three years (longer if you have foreign accounts).
Frequently Asked Questions (FAQs)
1. What if I receive a corrected 1099 after I've already filed?
If you receive a corrected Form 1099-INT or 1099-DIV showing different amounts after you've filed your return, you'll need to file an amended return (Form 1040X) with a corrected Schedule B if the change is significant. Minor differences (a few dollars) may not require amending, but substantial changes should be corrected to avoid IRS notices.
2. Do I report qualified dividends on Schedule B?
No. Schedule B Part II is only for ordinary dividends (Form 1099-DIV box 1a). Qualified dividends (box 1b) are reported directly on Form 1040 line 9b and benefit from lower tax rates, but they're not separately listed on Schedule B. You still report the payer and the ordinary dividend amount from box 1a.
3. What counts as a "foreign financial account" for question 7a?
A foreign financial account includes bank accounts, brokerage accounts, mutual funds, and other financial accounts held at institutions located outside the United States. It does NOT include foreign stocks held in a U.S. brokerage account—those are U.S. accounts holding foreign investments. The key is where the financial institution is located, not what you're invested in.
4. Can married couples split their interest and dividends between two returns?
No. If you file separately, each spouse reports only the interest and dividends they actually received or that belong to them. For joint accounts, you typically split the income 50/50 unless you can demonstrate a different ownership percentage. If you file jointly, you report all interest and dividends on one Schedule B attached to your joint return.
5. What if my Schedule B requires more space than the form provides?
If you have many payers and run out of room on lines 1 or 5, you can attach additional sheets using the same format. Make sure to put your name and Social Security Number on the extra pages, show your totals on the official Schedule B form, and attach the extra pages at the end of your return.
6. Is there a penalty for not filing Schedule B when required?
While there's no specific penalty for the schedule itself, failing to report income can lead to accuracy-related penalties (typically 20% of the understated tax) or even substantial understatement penalties. Additionally, incorrect or missing answers to the foreign account questions can trigger steep FBAR penalties ranging from $10,000 to much higher amounts for willful violations.
7. How do I handle interest from U.S. savings bonds used for education?
If you cashed Series EE or I U.S. savings bonds issued after 1989 and used the proceeds for qualified higher education expenses, you may exclude some or all of the interest. Complete Form 8815 to calculate the exclusion, then enter the excludable amount on Schedule B line 3. The excluded amount doesn't get taxed, but you still must go through Schedule B to document it.
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Sources: All information is derived from official IRS documents for tax year 2010:
