Form 1099-INT

The Form 1099-INT is a tax form issued by brokers, banks, and investment companies reporting interest income you earned during the year. Interest is taxed as ordinary income at your marginal tax rate, not at preferential capital gains rates. Unlike qualified dividends, there is no preferential treatment for interest income, making bonds and savings accounts less tax-efficient than stocks.

What counts as interest income on 1099-INT

Bank interest: Savings accounts, money market accounts, CDs all report interest on 1099-INT.

Bond interest: Corporate bonds, Treasury bonds, municipal bonds (in some cases) report interest on 1099-INT.

Loan interest received: If you lend money to someone and charge interest, it is ordinary income.

Investment account interest: Brokers report earned interest on margin accounts, dividend reinvestment plans, and other accounts.

Tax treatment: ordinary income

Interest income is always taxed at your marginal tax rate, the same rate as wages. There is no preferential treatment like long-term capital gains (0%-20%) or qualified dividends (0%-15%).

Example: You earn $120,000 in wages and $5,000 in interest income. Your total taxable income is $125,000. The $5,000 interest is taxed at your marginal rate—likely 22% or 24%—costing $1,100-$1,200 in federal tax.

The same $5,000 in qualified dividend income would be taxed at 15%, costing $750. This is why stocks with qualified dividends are more tax-efficient than bonds with interest.

Multiple 1099-INTs

If you have interest income from multiple banks or brokers, you will receive multiple 1099-INT forms. You must aggregate all interest income on a single Schedule B on your tax return.

Treasury interest and state tax

Federal Treasury bonds produce interest that is exempt from state income tax. This is reported separately on the 1099-INT (Box 3 for US Savings Bond interest). When you report Treasury interest on your state return, you may be able to exclude it.

Corporate bonds and other interest are subject to both federal and state tax.

Series I Savings Bond interest

Series I Savings Bonds do not issue 1099-INT until you redeem them. The interest accrues and is taxed in the year of redemption. This is a way to defer interest taxation: buy a bond today, report no interest until you cash it years later.

Timing and accrued interest

The 1099-INT reports interest paid or credited during the calendar year, not interest earned. If you buy a bond and it accrues interest but does not pay until January of the next year, the 1099-INT for the purchase year will not include that interest.

Estimated tax payments

If you receive substantial interest income (and little or no tax withholding), you may need to make estimated tax payments quarterly to avoid underpayment penalties.

No tax withholding on interest

Banks and brokers generally do not withhold tax from interest income (unlike wages, which are subject to payroll withholding). You are responsible for reporting the interest and paying the tax when due.

This can be a surprise for retirees living on interest income who expected automatic withholding.

Contrast with dividends and capital gains

This difference drives much of tax-efficient investing strategy: favor stocks (which pay qualified dividends) over bonds (which pay interest) in taxable accounts.

See also