The IRS doesn’t recognize a minimum of reportable interest for income tax purposes. If you made a dollar of interest on most accounts or loans, you are supposed to report it, with few exceptions. However, there is a minimum amount of interest you must earn before banks and other financial institutions are required to send you a Form 1099-INT for reporting purposes. They send the IRS the same information. As of 2017, the minimum amount is just $10.
Not receiving a 1099-INT is no excuse for not reporting interest, as the IRS makes clear. The IRS website warns that recipients are responsible for reporting all interest on federal tax forms, even if they do not receive any Form 1099-INTs.
Where to Find Interest Amounts Under $10
Since a financial institution is not required to send you a 1099-INT if you earned less than $10 in interest, where do you find the correct amount if you want to stay compliant with the IRS? The statements from your financial institutions include that information.
Interest is reported on Line 8a of either Form 1040 or 1040A or on Line 2 of Form 1040EZ. Anyone who receives more than $1,500 in interest income annually is required to file Form 1040. The amount is included on Schedule B of your income tax form.
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If you cashed in Series EE or Series I bonds issued after 1989 and used those funds to pay for higher education, you do not have to pay tax on the interest, but you still must report it. You figure out how much interest is excluded using Form 8815 and then include it on Schedule B of your Form 1040 or 1040A.
If you own tax-exempt municipal bonds issued by a state for the purpose of financing government operations, you can exclude that interest. Again, such interest in reportable but not taxable.
If you receive U.S. Department of Veterans Affairs insurance dividends, you do not have to report them on your income tax form.
Interest is taxed as ordinary income, so you pay the same rate on interest as you do on earned income.
Money Market Accounts
If you have a money market account at a bank or brokerage, you receive dividends instead of interest on your monies. However, the IRS considers those dividends equivalent to interest. The same holds true for dividends issued by credit unions, savings and loan associations and other cooperative financial institutions. This differs from true dividends received from stock shares or mutual funds.
What If You Don’t Have to File an Income Tax Return?
Not everyone has to file an income tax return if they don’t meet the minimum income requirements for doing so. In 2017, if your income was less than $10,400 and you are under age 65, you don’t have to file a return. Tax-exempt income, such as that from certain municipal bonds, doesn’t count toward that income threshold. Taxable interest, however, must be included in your income calculations.
What If You Didn’t Report Interest Income?
Failing to report interest income incurs penalties. Usually, the penalty is 0.05 percent of the amount owed, charged monthly. You receive a letter from the IRS after the end of the April filing deadline, and if you fail to pay up, the amount charged rises to 1 percent of the tax owed. If you continue to neglect to pay the tax, the amount can rise substantially. If you realize you didn’t report the interest income, you can and should file an amended return.
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