Page 64 - 2020 Publication 17

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Page 62 of 138
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
For information about figuring the correct ($2,000 principal and $163.20 interest). If you 5. You received, as a nominee, interest that
amount of OID to include in your income, see use the cash method, you must include in in- actually belongs to someone else.
Figuring OID on Long-Term Debt Instruments in come on your 2020 return the $163.20 interest 6. You received a Form 1099-INT for interest
Pub. 1212 and the instructions for Form you received in that year. on frozen deposits.
1099-OID.
If you acquired your debt instrument on or Constructive receipt. You constructively 7. You received a Form 1099-INT for interest
after January 1, 2014, unless you have in- receive income when it is credited to your ac- on a bond you bought between interest
formed your payer that you do not want to am- count or made available to you. You don't need payment dates.
ortize bond premium, your payer must generally to have physical possession of it. For example, 8. You are reporting OID in an amount less
report either (1) a net amount of OID that re- you are considered to receive interest, divi- than the amount shown on Form
flects the offset of OID by the amount of bond dends, or other earnings on any deposit or ac- 1099-OID.
premium or acquisition premium amortization count in a bank, savings and loan, or similar fi-
for the year, or (2) a gross amount for both the nancial institution, or interest on life insurance 9. You reduce interest income from bonds by
OID and the bond premium or acquisition pre- policy dividends left to accumulate, when they amortizable bond premium.
mium amortization for the year. are credited to your account and subject to your In Part I, line 1, list each payer's name and the
Refiguring periodic interest shown on Form withdrawal. This is true even if they aren't yet amount received from each. If you received a
entered in your passbook.
1099-OID. If you disposed of a debt instrument You constructively receive income on the Form 1099-INT or Form 1099-OID from a bro-
or acquired it from another holder during the deposit or account even if you must: kerage firm, list the brokerage firm as the payer.
year, see Bonds Sold Between Interest Dates,
Reporting tax-exempt interest. Total your
earlier, for information about the treatment of • Make withdrawals in multiples of even tax-exempt interest (such as interest or accrued
periodic interest that may be shown in box 2 of amounts;
Form 1099-OID for that instrument. • Give a notice to withdraw before making OID on certain state and municipal bonds, in-
cluding zero coupon municipal bonds) reported
Certificates of deposit (CDs). If you buy a the withdrawal; on Form 1099-INT, box 8, and exempt-interest
CD with a maturity of more than 1 year, you • Withdraw all or part of the account to with- dividends from a mutual fund or other regulated
must include in income each year a part of the draw the earnings; or investment company reported on Form
total interest due and report it in the same man- 1099-DIV, box 11. Add these amounts to any
ner as other OID. • Pay a penalty on early withdrawals, unless other tax-exempt interest you received. Report
the interest you are to receive on an early
This also applies to similar deposit arrange- withdrawal or redemption is substantially the total on line 2a of Form 1040 or 1040-SR.
ments with banks, building and loan associa- less than the interest payable at maturity. Form 1099-INT, box 9, and Form 1099-DIV,
tions, etc., including: box 12, show the tax-exempt interest subject to
• Time deposits, Accrual method. If you use an accrual the alternative minimum tax on Form 6251.
These amounts are already included in the
method, you report your interest income when
• Bonus plans, you earn it, whether or not you have received it. amounts on Form 1099-INT, box 8, and Form
• Savings certificates, Interest is earned over the term of the debt in- 1099-DIV, box 11. Don't add the amounts in
Form 1099-INT, box 9, and Form 1099-DIV,
strument.
• Deferred income certificates, box 12, to, or subtract them from, the amounts
Example. If, in the previous example, you
• Bonus savings certificates, and use an accrual method, you must include the in- on Form 1099-INT, box 8, and Form 1099-DIV,
box 11.
• Growth savings certificates. terest in your income as you earn it. You would
Bearer CDs. CDs issued after 1982 must report the interest as follows: 2018, $26.67; Don't report interest from an IRA as
tax-exempt interest.
generally be in registered form. Bearer CDs are 2019, $81.06; and 2020, $55.47. !
CDs not in registered form. They aren't issued Coupon bonds. Interest on bearer bonds with CAUTION
in the depositor's name and are transferable detachable coupons is generally taxable in the Form 1099-INT. Your taxable interest income,
from one individual to another. year the coupon becomes due and payable. It except for interest from U.S. savings bonds and
Banks must provide the IRS and the person doesn't matter when you mail the coupon for Treasury obligations, is shown in box 1 of Form
redeeming a bearer CD with a Form 1099-INT. payment. 1099-INT. Add this amount to any other taxable
More information. See chapter 1 of Pub. 550 interest income you received. See the instruc-
tions for Form 1099-INT if you have interest
for more information about OID and related top- How To Report from a security acquired at a premium. You
ics, such as market discount bonds. Interest Income must report all of your taxable interest income
When To Report Generally, you report all your taxable interest in- even if you don't receive a Form 1099-INT.
Contact your financial institution if you don't re-
Interest Income come on Form 1040 or 1040-SR, line 2b. ceive a Form 1099-INT by February 15. Your
identifying number may be truncated on any pa-
When to report your interest income depends Schedule B (Form 1040). You must also per Form 1099-INT you receive.
If you forfeited interest income because of
on whether you use the cash method or an ac- complete Schedule B (Form 1040), Part I, if you the early withdrawal of a time deposit, the de-
crual method to report income. file Form 1040 or 1040-SR and any of the fol- ductible amount will be shown on Form
Cash method. Most individual taxpayers use lowing apply. 1099-INT in box 2. See Penalty on early with-
the cash method. If you use this method, you 1. Your taxable interest income is more than drawal of savings in chapter 1 of Pub. 550.
generally report your interest income in the year $1,500. Box 3 of Form 1099-INT shows the interest
in which you actually or constructively receive it. 2. You are claiming the interest exclusion un- income you received from U.S. savings bonds,
However, there are special rules for reporting der the Education Savings Bond Program Treasury bills, Treasury notes, and Treasury
the discount on certain debt instruments. See (discussed earlier). bonds. Generally, add the amount shown in
U.S. Savings Bonds and Original Issue Dis- box 3 to any other taxable interest income you
count (OID), earlier. 3. You received interest from a seller-fi- received. If part of the amount shown in box 3
nanced mortgage, and the buyer used the was previously included in your interest income,
Example. On September 1, 2018, you property as a home. see U.S. savings bond interest previously re-
loaned another individual $2,000 at 4% interest, 4. You received a Form 1099-INT for U.S. ported, later. If you acquired the security at a
compounded annually. You aren't in the busi- savings bond interest that includes premium, see the instructions for Form
ness of lending money. The note stated that amounts you reported in a previous tax 1099-INT.
principal and interest would be due on August year.
31, 2020. In 2020, you received $2,163.20
Page 60 Chapter 6 Interest Income