What the Form Is For

Schedule B (Form 1040A or 1040) is a supplemental tax form used to report detailed information about interest income and ordinary dividends you received during the 2011 tax year. Think of it as the "detailed receipt" that backs up the interest and dividend numbers you enter on your main tax return (Form 1040 or 1040A).

The form is divided into three main parts: Part I lists all sources of taxable interest income (from banks, bonds, savings accounts, etc.), Part II lists all sources of ordinary dividends (from stocks, mutual funds, and other investments), and Part III addresses foreign financial accounts and trusts—a critical compliance area that carries significant penalties if overlooked.

Schedule B serves two important purposes beyond simply listing your investment income. First, it helps the IRS match the income you report with the information statements (Forms 1099-INT and 1099-DIV) that banks and brokerages send to both you and the IRS. Second, Part III acts as a gateway disclosure mechanism for foreign financial accounts, alerting the government to potential overseas holdings that may require additional reporting on separate forms like the FBAR (Form TD F 90-22.1) or Form 8938.

When You’d Use Schedule B (Including Late or Amended Returns)

You must file Schedule B if any of the following situations apply to your 2011 tax year:

• You had over $1,500 in taxable interest or ordinary dividends. This is the primary threshold that triggers the filing requirement. If your interest was $1,500 or less AND your dividends were $1,500 or less, you can simply report the totals directly on Form 1040 (lines 8a and 9a) or Form 1040A without attaching Schedule B.
• You received interest from a seller-financed mortgage where the buyer used the property as a personal residence. Even if your total interest is below $1,500, this special situation requires Schedule B because you must report the buyer's name, address, and Social Security number.
• You have special interest or dividend situations, including: receiving interest or dividends as a nominee (meaning the income legally belongs to someone else), claiming the education savings bond exclusion (Form 8815), reporting original issue discount (OID) adjustments, or dealing with bond premium amortization.
• You had foreign financial accounts or trusts. Regardless of your income amounts, if you had a financial interest in or signature authority over foreign bank accounts, securities accounts, or other foreign financial accounts during 2011, you must complete Part III of Schedule B. Similarly, if you received a distribution from or were a grantor/transferor to a foreign trust, Schedule B is required.

Late or Amended Returns

For late or amended returns: If you're filing your 2011 return late (past the April 2012 deadline) or amending it using Form 1040X, you must still attach Schedule B if any of the above conditions apply. When amending, prepare a corrected Schedule B reflecting the accurate interest and dividend information, attach it to Form 1040X, and clearly mark it as "Amended." The same filing requirements apply whether you're filing on time, late, or correcting a previous return.

Key Rules or Details for 2011

The $1,500 Threshold Applies Separately

Many taxpayers mistakenly think the $1,500 applies to their combined interest and dividends. It doesn't. If you had $1,600 in interest but only $800 in dividends, you must file Schedule B because your interest exceeded $1,500—even though your total investment income was only $2,400.

List Every Payer Separately

You cannot simply write "various banks" or lump sources together. Each bank, brokerage, mutual fund, or other payer must be individually identified by name, with the corresponding amount shown. However, if you received multiple 1099 forms from a single brokerage firm, you can list the brokerage once and show the total from all their 1099s.

Nominee Income Requires Special Handling

If you received a Form 1099-INT or 1099-DIV in your name for income that legally belongs to someone else (for example, a joint account where you're listed first but your parent owns the funds), you must list the full amount on Schedule B, then subtract the nominee portion on a separate line labeled "Nominee Distribution." You're also required to issue a Form 1099 to the actual owner and file copies with the IRS—this isn't optional.

Foreign Account Disclosure Is Mandatory and Carries Steep Penalties

Part III of Schedule B asks two critical questions: (1) Did you have a financial interest in or signature authority over any foreign financial account during 2011? (2) Are you required to file Form TD F 90-22.1 (the FBAR)? You must answer truthfully. A "foreign account" includes bank accounts, brokerage accounts, mutual funds, and even certain life insurance policies held outside the United States. If the aggregate value of all your foreign accounts exceeded $10,000 at any point during 2011, you must file the FBAR separately with the Treasury Department by June 30, 2012. Willful failure to report can result in civil penalties up to $100,000 or 50% of the account balance, plus potential criminal charges.

Don't Confuse Ordinary Dividends with Qualified Dividends

Schedule B reports only ordinary dividends (shown in box 1a of Form 1099-DIV). Qualified dividends (box 1b) are also reported on your main tax return but are taxed at preferential capital gains rates. All qualified dividends are included in the ordinary dividend total on Schedule B.

Tax-Exempt Interest Doesn't Go on Schedule B

Interest from municipal bonds and other tax-exempt sources (shown in box 8 of Form 1099-INT) should not be listed on Schedule B. Instead, report this amount on line 8b of Form 1040 or 1040A.

Step-by-Step (High Level)

How to Complete Schedule B (High-Level)

Step 1: Gather Your Forms 1099-INT and 1099-DIV

Collect all the information statements you received from banks, brokerages, mutual funds, and other financial institutions. These typically arrive in January and early February following the tax year.

Step 2: Complete Part I (Interest) if Required

In the left column, list each payer's name individually. If you have seller-financed mortgage interest, list it first and include the buyer's name, address, and Social Security number. In the right "Amount" column, enter the taxable interest from each source. Add up all the amounts and enter the total on line 2. If you're claiming the education savings bond interest exclusion, enter that amount on line 3 (and attach Form 8815). Subtract line 3 from line 2 and enter the result on line 4—this is your net taxable interest that also goes on Form 1040, line 8a.

Step 3: Complete Part II (Ordinary Dividends) if Required

Use the same approach: list each dividend payer's name in the left column and the ordinary dividend amount (from box 1a of Form 1099-DIV) in the right "Amount" column. Add up all the amounts and enter the total on line 6—this amount also goes on Form 1040, line 9a.

Step 4: Handle Special Situations (If Applicable)

If you received income as a nominee, list all the income first, then create a subtotal. On the next line, write "Nominee Distribution" and enter the amount that belongs to others as a negative number (or in parentheses). Subtract to get your net amount. Follow similar procedures for accrued interest adjustments, OID adjustments, or bond premium adjustments, clearly labeling each.

Step 5: Complete Part III (Foreign Accounts and Trusts)

Answer question 7a honestly: Did you have a foreign financial account during 2011? Check Yes or No. If Yes, proceed to question 7b: Are you required to file the FBAR (Form TD F 90-22.1)? Check Yes or No based on whether your accounts exceeded the $10,000 threshold. If you checked Yes to 7b, write the name(s) of the foreign countries where accounts are located. Answer question 8 about foreign trusts. Remember: The FBAR itself (Form TD F 90-22.1) must be filed separately with the Treasury Department—do not attach it to your tax return.

Step 6: Attach Schedule B to Your Form 1040 or 1040A

Place it in the correct sequence (Attachment Sequence No. 08) with your other schedules and forms.

Common Mistakes and How to Avoid Them

Mistake #1: Assuming You Don't Need Schedule B Because Your Total Is Close to $1,500

Many taxpayers with $1,450 in interest and $1,450 in dividends skip Schedule B, thinking their totals don't cross the threshold. Wrong. Since neither category individually exceeds $1,500, they're correct—but if either one alone is over $1,500, Schedule B is required. Solution: Check each category separately against the $1,500 threshold.

Mistake #2: Forgetting to Include All Sources

It's easy to overlook that $47 in interest from a forgotten savings account or $125 in dividends from 10 shares of stock inherited from your grandmother. The IRS receives copies of every Form 1099, and their computers will flag the mismatch. Solution: Before completing Schedule B, make a checklist of every account you held during 2011, then cross-reference against the 1099 forms you received.

Mistake #3: Reporting Tax-Exempt Interest on Schedule B

Municipal bond interest and other tax-exempt interest (box 8 of Form 1099-INT) should never appear on Schedule B. While you must report it elsewhere on your tax return (line 8b), including it on Schedule B artificially inflates your taxable interest. Solution: Separate your 1099-INT forms into two piles—taxable (for Schedule B) and tax-exempt (for line 8b only).

Mistake #4: Ignoring the Foreign Account Questions

Some taxpayers leave Part III blank or check "No" without carefully reading the questions, not realizing that signature authority (such as being authorized on your employer's foreign bank account) triggers disclosure requirements even if you don't own the account. Solution: Read Part III carefully. If you had any connection to foreign financial accounts—including signature authority for work—answer honestly and consult the FBAR instructions.

Mistake #5: Failing to Issue Nominee Forms 1099 to Actual Owners

If you received a 1099 for income belonging to someone else, you must issue them a corrected 1099 (unless it's your spouse) and file copies with the IRS along with Form 1096. Many taxpayers think subtracting the nominee amount on Schedule B is sufficient. Solution: If you have nominee income, consult the IRS General Instructions for Certain Information Returns or speak with a tax professional to ensure proper 1099 reporting.

Mistake #6: Forgetting to List the Buyer's Information for Seller-Financed Mortgages

If you sold property and the buyer is paying you interest on an installment sale, you must include their name, address, and Social Security number on Schedule B—or face a $50 penalty per missing information item. Solution: If you received any seller-financed interest, list it first on Schedule B with complete buyer information.

What Happens After You File

IRS Matching Process

After you file your 2011 return with Schedule B attached, the IRS computers will match your reported interest and dividends against the Forms 1099-INT and 1099-DIV that financial institutions filed electronically. This matching typically occurs 6-12 months after you file. If there's a discrepancy—you reported $2,100 in interest but the IRS records show $2,300—you'll receive a CP2000 notice proposing additional tax, interest, and possibly penalties.

If You Underpaid Tax

The CP2000 notice will calculate the additional tax owed based on the unreported income, plus interest charges from the April 2012 due date, and potentially an accuracy-related penalty of 20% if the understatement is substantial. You'll have an opportunity to respond with explanations (perhaps a 1099 was issued in error) or to agree and pay the balance.

FBAR Compliance Check

If you checked "Yes" to having foreign accounts on Schedule B Part III, the IRS may flag your return for verification that you actually filed the required FBAR with the Treasury Department. The FBAR has a June 30 deadline (not April 15) and must be mailed to a special address in Detroit—not filed with your tax return. Failure to file the FBAR is a separate violation from tax underreporting and carries its own severe penalties, so Schedule B Part III acts as a cross-check.

Refund or Balance Due Processing

The interest and dividends reported on Schedule B feed into your total income on Form 1040, which affects your ultimate tax liability. If Schedule B shows more income than you initially estimated, you might owe additional tax or receive a smaller refund. The IRS typically processes returns within 21 days for e-filed returns or 6-8 weeks for paper returns.

Audit Selection

While Schedule B itself rarely triggers an audit, certain red flags can increase scrutiny: frequent nominee distributions (which might indicate income-shifting arrangements), large amounts of interest with no corresponding mortgage interest deduction (suggesting unreported offshore accounts), or checking "Yes" to foreign accounts without filing the FBAR. For most taxpayers with straightforward interest and dividend income, Schedule B is a routine part of return processing.

Statute of Limitations

The IRS generally has three years from your filing date to assess additional tax. However, if you fail to report foreign financial accounts or underreport income by more than 25%, the statute extends to six years. For willful FBAR violations, there's no statute of limitations.

FAQs

Q1: I received a 1099-INT showing $1,520 in interest, but $200 was a penalty for early withdrawal of a certificate of deposit. Do I need to file Schedule B?

A: Not necessarily. The $200 early withdrawal penalty is deducted on Form 1040, line 30 (or Form 1040A, line 18), reducing your taxable income. For Schedule B purposes, the question is whether your net taxable interest exceeds $1,500. In this case, $1,520 minus $200 equals $1,320, which is below the threshold. Report the full $1,520 directly on Form 1040, line 8a, and claim the $200 penalty deduction on line 30—no Schedule B required.

Q2: My brokerage firm sent me one Form 1099 consolidating interest from 15 different bonds and dividends from 30 different stocks. Do I have to list all 45 sources on Schedule B?

A: No. When a brokerage firm provides a consolidated 1099-INT or 1099-DIV, you can list the brokerage firm's name once as the payer and enter the total interest or dividend amount shown on that consolidated form. You do not need to break out each underlying security. However, if you received separate 1099 forms from multiple institutions, each institution must be listed separately on Schedule B.

Q3: I inherited stock when my mother passed away in 2011 and received a $450 dividend before the estate closed. I also earned $1,200 in bank interest. Do I need Schedule B?

A: In this case, your interest income ($1,200) is under $1,500 and your dividend income ($450) is under $1,500, so neither category individually exceeds the threshold. Therefore, you would not need Schedule B based on the $1,500 threshold alone. However, if the estate issued the 1099-DIV in your name but the dividend legally belongs to the estate, you may have a nominee situation requiring Schedule B. Consult the estate's tax preparer to clarify ownership.

Q4: I bank with an online bank that's based in England but operates in the United States. Do I need to answer "Yes" to the foreign account question on Part III?

A: Not necessarily. The key is the physical location of the account, not the company's headquarters. If the account is maintained with a U.S.-based branch of the foreign bank and the branch is physically located in the United States, it's a domestic account. However, if your account is held at the London branch, it's a foreign account. Check your account statements or contact the bank to determine the branch location. When in doubt, answer "Yes" and consult the FBAR instructions—it's better to over-disclose than risk penalties.

Q5: I forgot to file Schedule B with my 2011 return, which I filed in March 2012. I had $2,300 in interest. What should I do now?

A: File an amended return using Form 1040X. Prepare a complete Schedule B showing all your interest income, attach it to Form 1040X, and check the box indicating which year you're amending (2011). In the explanation section of Form 1040X, write something like "Filing Schedule B – originally omitted in error." If your total taxable income doesn't change (because you correctly reported the interest amount on Form 1040, line 8a, but just forgot to attach the detailed Schedule B), there's no additional tax owed and you likely won't face penalties. However, if you also underreported the interest income on your original return, you'll owe additional tax plus interest from April 2012.

Q6: Can I file Schedule B electronically, or does it have to be mailed?

A: Schedule B can be filed electronically along with your Form 1040 or 1040A when you e-file your tax return. All major tax preparation software programs include Schedule B and will automatically attach it to your electronic return if your interest or dividends exceed $1,500. The convenience and speed of e-filing apply to Schedule B just as they do to the main tax return. However, note that the FBAR (Form TD F 90-22.1) referenced in Schedule B Part III must be mailed separately to the Treasury Department—it cannot be e-filed with your tax return.

Q7: My mutual fund sent me a 1099-DIV showing $1,800 in ordinary dividends (box 1a) and $1,200 in qualified dividends (box 1b). Which amount goes on Schedule B?

A: The $1,800 from box 1a (ordinary dividends) goes on Schedule B, line 5, and flows to Form 1040, line 9a. The qualified dividend amount ($1,200) is included within that $1,800 total and is separately reported on Form 1040, line 9b, where it receives preferential tax treatment. Think of it this way: all qualified dividends are ordinary dividends, but not all ordinary dividends are qualified. Schedule B captures the total ordinary amount; the qualified portion is sorted out on the main tax return for tax calculation purposes.

For More Information

Source: This guide is based on the official 2011 Schedule B (Form 1040A or 1040) form and instructions published by the Internal Revenue Service at IRS.gov.