Interest Income
In general, any interest you receive through an account credit or other means is taxable income.
Taxable Interest Income
- Federal Bonds
- Industrial development bonds.
- Corporate bonds.
- Premium received for opening a savings account (e.e. prizes and awards) are included at FMV.
- Part of the proceeds from an installment sale is taxable as interest.
- Interest paid by federal or state government for late payment of tax refund is taxable.
- For certain taxpayers and certain bonds, amortization of a bond premium is offset(reduction) to the interest received and a reduction to the bond’s basis, and amortization of a bond discount is an addition to the interest received and an addition to the bond’s basis.
Tax Exempt Interest Income
Tax Exempt Interest Income is reportable but not taxable.
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State and Local Government Bonds/Obligations
Interest on state and local bonds/obligations is tax/exempt. Mutual fund dividends for funds invested in tax-free bonds are also tax exempt.
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Bonds of U.S. Possession
Interest on the obligation of a possession of the United States is tax exempt.
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Series EE (U.S. Savings Bonds)
- Interest on Series EE Savings Bonds is tax exempt when:
- It is used to pay for higher education, reduced by tax-free scholarships, of the taxpayer, spouse, or dependents;
- There is taxpayer or joint ownership (spouse);
- Taxpayer is over age 24 when issued; and
- The bonds are acquired after 1989.
- Phase-out starts when modified AGI exceeds an indexed amount. (For 2012, phase out begins at $72,850 for single and head of household and $109,250 for married filing joint. There is no exclusion for those using the married filing separately status.
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Veterans Administration Insurance
Interest on Veterans Administration Insurance is tax exempt.
Forms
Form 1099 INT
Schedule B – Interest & Dividends
Publication 550
