What is taxable interest income?
It is any form of interest you receive that was:
- credited to an account and;
- you’re able to withdraw without penalties during the year it was available.
Typically, you receive this on Forms 1099-INT or 1099-OID. Some interest you receive may be tax exempt. Most importantly, you must report all taxable and tax-exempt interest on your tax return. (Even if you didn’t receive the forms)
Examples of Taxable Interest Income
Interest on a bank account, money market accounts, certificates of deposit, corporate bonds and deposited dividends including distributions are taxable interest. This includes distributions on deposits or share accounts, credit unions, domestic building and domestic federal savings, and loan associations and mutual saving banks.
Treasury bills, notes, and bonds are exempt from all state and local taxes.
Savings Bond interest includes the annual interest but interest on Series EE and Series I U.S. Generally, you do not report savings bonds until you redeem them, dispose them, or until they mature. If you paid qualified higher educational expenses during the year, you can exclude the interest of these bonds from your income. Interest on municipal bonds is non-taxable. If your 1099-INT has the words “Income not reported to IRS” or “Details of 1099 tax-exempt interest” then that interest is not taxable.
Report Other Interest from businesses such as interest received from damages or delayed death benefits on Form 1099-INT if it exceeds $600.
The credit union may not issue a form summarizing interest if the amount is less than $10. You must report all income. The IRS allows rounding to whole numbers. If the interest income is 49 cents, you can round that amount to 0 and not have to pay taxes on it.