If you received Form 1099-OID, it means you earned original issue discount (OID) income. OID is a type of interest income that can occur when a bond or similar debt instrument is issued for less than its face value.
In simple terms, the OID is the difference between:
- The bond's issue price (what it was originally sold for), and
- Its face value (the amount paid when the bond matures).
Even if you don't receive cash payments during the year, the IRS generally requires you to report a portion of the OID as taxable interest income each year you own the bond.
Understanding Original Issue Discount (OID)
Original issue discount is treated as interest for federal income tax purposes. The issuer reports the amount of OID you must include in income on Form 1099-OID.
However, the amount reported on your form may need to be adjusted in certain situations, including when:
- You purchased the bond at a premium.
- The bond is indexed for inflation.
- The obligation is a stripped bond or stripped coupon.
- You received the Form 1099-OID as a nominee for another person.
OID Adjustments
In some cases, the amount you must report on your tax return is less than the amount shown on Form 1099-OID.
When that happens, you generally:
- Report the full amount shown on the form.
- Enter an adjustment to reduce the taxable amount.
The reduction is known as an OID adjustment.
Because these calculations can be complex, you may need to review IRS Publication 1212, Guide to Original Issue Discount (OID) Instruments, before making any adjustments.
Note: OID adjustment rules can be complicated, especially for premium bonds, inflation-indexed securities, or nominee situations. Be sure to keep any supporting records with your tax documents.
How to Enter Form 1099-OID in the Program
To report your Form 1099-OID:
- Go to Federal
- Select Income – Select My Forms
- Choose 1099-DIV, INT, OID
- Answer Yes to the question asking whether you received interest or dividend income from a financial institution
- Select Original Issue Discount (Form 1099-OID)
Enter the information exactly as it appears on your form unless you need to make a qualified adjustment.
Entering OID Adjustments
Within the Form 1099-OID section, adjustment fields are available for:
- Nominee Interest
- Decedent Interest
- Accrued Interest
If one of these situations applies to you, enter the appropriate adjustment amount so your taxable income is reported correctly.
Before You File
Review your Form 1099-OID carefully and compare it with any bond purchase records you have. Small differences between what appears on the form and what you must report are fairly common when adjustments apply. Taking a few extra minutes to verify the details can help you avoid IRS notices later and ensure your return is as accurate as possible.
Note: You may need to reference IRS Publication 1212 before making this adjustment since this can be complicated.