IRS Form 1099-OID Original Issue Discount

What Is a 1099-OID Form Used For?

As a general rule, the IRS Form 1099-OID is prepared and filed by brokerage businesses that possess debt instruments on behalf of investors that have a discount on the original issue. For instance, if the bond you hold has a $700 value, you may get it for just $600 before its maturity date comes. Once the bond matures, you can get $700 for it although you paid a lower price in the first place - the $100 you earn through this transaction must be reported as income. The same applies to notes and certificates of deposit, and you will be expected to submit information from the Tax Form 1099-OID with the help of your regular tax return.

Entities that pay $10 and more of the original issue discount to any individual or organization, deduct foreign tax on the amount, or deduct federal income tax, must issue Form 1099-OID. If you know you have a discount investment of this kind, you will receive a copy of the form from a brokerage company at the beginning of the year; however, if your mailbox is empty by the end of January, it is strongly recommended to reach out to the potential issuer and request a form so that you are able to fill out your income statement correctly.

1099-INT vs 1099-OID

IRS Form 1099-INT, Interest Income, is often sent to taxpayers that receive the Original Issue Discount Form. You will get it if you received interest income from a financial institution, and the amount was $10 or more. However, the 1099-OID form is focused on discounted bonds while the 1099-INT form is required to report deposit account interest, real estate mortgage investments, and dividends.

Form 1099-OID Instructions

IRS Form 1099-OID Instructions are as follows:

1. Identify the sender and the recipient of the paperwork - the payer and the taxpayer that benefited from the discount . You have to state their full names, mailing addresses, and taxpayer identification numbers. It is also important to add the telephone number of the entity that issued the form. In case the recipient has more than one account with your organization, clarify the number of the account in question in writing.

2. Check the appropriate boxes if you are obliged to follow the regulations of the Foreign Account Tax Compliance Act and if the tax organs have previously informed you about the error in the payee's identification number.

3. Specify the tax year you file the form for . Write down the amount of taxable interest you will later replicate in your main income statement - you have to be certain the number does not include the interest you receive from obligations issued by the U.S. Treasury. If there was any other interest credited or paid on the obligation in question, add that number to the instrument as well.

4. Indicate the penalty for the early withdrawal that applies to the time deposits and record the amount of federal income tax deducted from the interest . The latter number is mandatory if the recipient failed to provide you with their identification number properly.

5. State the amount of the market discount applicable in your situation if it accumulated during the tax year and is $10 or more . Additionally, you have to elaborate on the premium amortization for the months the debt instrument was in the possession of the holder.

6. Describe the obligation - for instance, you may identify the stock exchange and the year the maturity occurs . Enter the discount applicable to a U.S. Treasury obligation, specify the costs of investment, the amortization of the bond premium allocated to the interest, and the amount of the discount that affects a tax-exempt obligation.

7. If the filing party participated in the program that permits them to submit paperwork on a state and federal level at the same time, it is essential to identify the state - enter the abbreviation of the state, its identification number, and the amount of the tax you deducted.

8. Make sure you comply with the 1099-OID process of filing - prepare a copy of the document for the IRS, send the other one to the tax department of your state, give a copy to the recipient of the original issue discount interest, and keep a copy in your own records so that you can refer to it whenever necessary.