Form 1099-OID: Original Issue Discount: What it is, How it Works

What Is Form 1099-OID: Original Issue Discount?

Form 1099-OID: Original Issue Discount is an Internal Revenue Service (IRS) form that taxpayers receive if their taxable income for the year includes any original issue discount (OID) payment. OID is the reduction in the price of a bond or other debt instrument from its face value at the time it was issued, and is taxable as interest over the life of the obligation.

The holdings may be a bond, debenture, note, certificate, or other evidence of indebtedness having a term of more than one year. They generally exist for holdings issued after 1984.

OID rules may apply to certificates of deposit, time deposits, bonus savings plans, and other deposit arrangements, especially if the payment of interest is deferred until maturity. The rules apply also to Treasury inflation-protected securities.

Who Needs to File Form 1099-OID: Original Issue Discount?

You receive Form 1099-OID if the OID includable in your gross income was at least $10, the provider of the form withheld and paid any foreign tax on the OID for you, or you had withheld (and did not have refunded) any federal income tax under the backup withholding rules, even if the amount of the OID is less than $10. Any state taxes withheld also will be shown.

What Is Form 1099-OID Used For?

Form 1099-OID is used to report original issue discount interest as part of your income. How the OID on a long-term debt instrument is calculated depends on the date it was issued as well as on the type of debt instrument.

Rules differ for instruments issued after July 1, 1982, and before 1985; instruments issued after 1984; contingent payment debt instruments issued after Aug. 12, 1996; and inflation-indexed debt instruments issued after Jan. 5, 1997.

A debt instrument you purchased after the date of its original issue may have premium, acquisition premium, or market discount. If it has premium or acquisition premium, the OID reported to you may have to be adjusted.

The rules for including OID in income generally do not apply to U.S. savings bonds, tax-exempt obligations, and loans of $10,000 or less between individuals who are not in the business of lending money.

How to Read Form 1099-OID

The 1099-OID will include your account number as well as all or part of your taxpayer identification number (TIN), Social Security Number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number (EIN).

If you hold an OID debt instrument and receive a 1099-OID that shows your TIN and includes amounts belonging to another person, you are considered a "nominee." You must file another 1099-OID for each actual owner, showing the OID for the owner.

The form will also show the reporting requirements, if any, under the Fair and Accurate Credit Transactions Act (FACTA).

Additional information on the form includes the OID on a taxable obligation for the part of the year you owned it. You report this as interest income on your income tax return.

The amount you report may depend on the type of debt instrument, the issue or acquisition date, and other factors.

All versions of Form 1099-OID are available on the IRS website.

Qualified stated interest on this obligation for the year is separate from the OID.

If you held the obligation the entire year, report this as interest income on your tax return. If you disposed of the obligation or acquired it from another holder during the year, you have special filing instructions and your interest may be exempt from tax. If you forfeited interest or principal by withdrawing the money before the maturity date of the obligation, you may deduct this amount to figure your adjusted gross income on your income tax return.

The information on your form may be different for covered and noncovered securities. You may also have special filing requirements if you held real estate mortgage investment conduit (REMIC) regular interests and collateralized debt obligation (CDO) interests.

The Bottom Line

The 1099-OID is an important form when you report special kinds of interest and investment income on your tax return. The form gives you specific information that you need to report correctly and in the right tax categories. If you have questions—and these issues are complicated—work with a tax preparer or expert.