Page 25 - Interest Income - Individuals Handbook

Interest income on frozen deposits

 Exclude from your gross income interest on frozen
deposits. A deposit is frozen if, at the end of the year,
you can't withdraw any part of the deposit because:
• The financial institution is bankrupt or insolvent, or
• The state where the institution is located has placed
limits on withdrawals because other financial
institutions in the state are bankrupt or insolvent.
 The amount of interest you must exclude is the interest
that was credited on the frozen deposits minus the sum

of:
• The net amount you withdrew from these deposits
during the year, and
• The amount you could have withdrawn as of the
end of the year (not reduced by any penalty for
premature withdrawals of a time deposit).
 If you receive a Form 1099-INT for interest income on
deposits that were frozen at the end of 2020, see Frozen
deposits under How To Report Interest Income in

chapter 1 of Pub. 550 for information about reporting
this interest income exclusion on your tax return.
 The interest you exclude is treated as credited to your
account in the following year. You must include it in
income in the year you can withdraw it.

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