When tax season rolls around, the tax forms you receive paint a detailed picture of your finances during the tax year. If Form 1099-OID found its way into your mailbox this year, it’s important to know what this tax document is and how to use it. Let’s look at why you received this tax form and how to correctly report it on your federal income tax return.
At a glance:
Form 1099-OID reports a special kind of interest income called original issue discount (OID).
You’ll typically receive Form 1099-OID from a payer if you have reportable OID income (at least $10).
Make sure to report any OID income on your tax return.
What is IRS Form 1099-OID used for?
Form 1099-OID, or original issue discount, is a tax document used to report a specific kind of interest income, typically from certain bonds, notes, certificates, or debentures (long-term business debt not secured by collateral). You may be familiar with Form 1099-INT, which reports interest income earned on investments. Form 1099-OID also reports interest income, but OID generally occurs when a company issues a bond at a price below its maturity redemption value. The OID is the difference between the issue price of the bond or other debt instrument and the redemption value.
Original issue discount explained
The IRS considers OID as interest income taxable over the life of the bond or debt instrument, meaning you need to report it during tax filing. Instead of waiting until you sell the bond to report the full OID, it is taxable over the life of the bond. Box 1 of Form 1099-OID shows your taxable OID for the year.
To better understand how original issue discount works, let’s look at an example. Say you paid $400 for a bond with a $500 face value. When the bond matures, you receive the full $500 face value of the bond, giving you an OID of $100. However, you’ll capture that $100 as interest income over the life of the bond rather than all at once when you cash in.
Tax Tip: The above applies to bonds and other debt instruments issued after 1984. If the bond in question was issued in 1984 or before, special rules apply. For more information, check out IRS Publication 1212.
Example of Form 1099-OID
Here’s an example of what Form 1099-OID looks like:
Form 1099-OID instructions
What information is on Form 1099-OID?
On Form 1099-OID, you’ll find several key pieces of information:
Recipient’s information: Your name, address, and Social Security number or ITIN, as well as your account number.
Payer’s information: The name and address of the entity that issued the security.
Original issue discount: In box 1, you’ll see the amount of OID income that you need to report for the tax year.
Other periodic interest: Box 2 shows the taxable interest paid to you during the year.
Early withdrawal penalty: If applicable, you’ll find any penalties incurred from early withdrawal of funds in box 3. For example, certain bonds may require you to forfeit a portion of accrued interest if you cash them out early.
Federal income tax withheld: If you had tax withheld from your payments, you’ll find that amount in box 4.
OID on U.S. Treasury obligations: Box 8 shows any taxable interest for federal income tax purposes, but many states exempt U.S. Treasury interest (including OID) from state income tax (rules vary by state).
Be sure to keep Form 1099-OID with your other tax records for safekeeping.
Form 1099-OID special considerations
Market discount bonds: If you purchased a bond at a market discount, different rules apply, and the OID might need to be adjusted accordingly.
Tax-exempt bonds: Some municipal bonds might have OID, but the interest may be tax-exempt. However, you must still report the OID for informational purposes.
Early redemption: If you redeem the security before its maturity date, the OID reported may need to be adjusted based on the terms of the redemption.
FAQs about Form 1099-OID
How to File Form 1099-OID with TaxAct®
Using Form 1099-OID for your tax filing is fairly straightforward, especially if you e-file with us at TaxAct. Our tax preparation software will walk you through the process step-by-step.
Dashboard (online)
From within your TaxAct return, click Income.
On smaller devices, click the menu at the top left corner of your screen, then make your selection.
Click the Explore More drop-down.
Click Add beside Original Issue Discount.
Complete the rest of the interview process.
Classic (online)
From within your TaxAct return, click Federal.
On smaller devices, click the menu at the top left corner of your screen, then make your selection.
Click the Investment Income drop-down, then click Original Issue Discount interest (Form 1099-OID).
Complete the rest of the interview process.
Desktop
From within your TaxAct return, click Federal.
Click the Investment Income drop-down, then click Original Issue Discount interest (Form 1099-OID).
Complete the rest of the interview process.
The bottom line
Form 1099-OID is an important tax form that ensures all interest income is properly reported to the IRS. Understanding the details provided on this form and how to incorporate them into your tax return will set you up for success during the tax filing season. For more information about this tax form, visit the IRS website.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
