Use this Worksheet to enter your interest income items. We then carry these items to either Schedule B (for the 1040 series) or Schedule 1 (for the 1040A series). By using the Worksheet, you have the flexibility to decide which form series to use after you have entered your interest income items.
We provide a number of special codes to handle special interest situations. The codes fall into two categories: one category describes the type of interest item, and the other category covers any adjustments you may need to make.
Here's what the various codes mean:
Use code T for interest received on any direct obligation of the United States, such as Treasury bills and notes and U.S. Savings Bonds. We treat this interest as regular taxable interest in our federal program. Our state programs will classify this kind of interest as tax-exempt for state tax purposes.
Code B is for other obligations backed by the United States government, such as FNMA ("Fannie Mae") and GNMA ("Ginnie Mae") bonds. As with code T, we treat this interest as regular taxable interest in the federal program, but the code is used by some of our state programs to classify the interest as tax-exempt for state tax purposes.
Code E means that the interest item is not included in income for federal tax purposes.
We'll show the amount of the item (after any adjustments that you may enter) on a separate line on Schedule B or Schedule 1. This separate line will appear below the regular lines and will be subtracted from the gross amount in arriving at your taxable interest. The tax-exempt amount (after adjustments) will also be included in the "tax exempt" box on Form 1040 line 8b or 1040A line 8b.
Interest from an exempt private activity bond is treated like other tax-exempt interest, but there's a little twist. Such interest is also added to the private activity bond amount, which appears as a so-called "tax preference" on the alternative minimum tax form, Form 6251, line 11 if you are using Form 1040, or on the Alternative Minimum Tax Worksheet, if you are using Form 1040A.
In general, a "private activity bond" for this purpose is a tax exempt bond which was issued after August 7, 1986, and 5% (or, in some cases 10%) of whose proceeds were used for non-governmental purposes, but which still qualified for tax exempt status under one of the specified exceptions.
If you enter a code of "1," you have designated the item as partially or completely a "nominee" amount. A "nominee" interest item is one that you receive in your name, but that really belongs to another person.
Example: Suppose that you contributed $6,000 and your sister contributed $4,000 to buy a single $10,000 certificate of deposit, which was registered in your name. Suppose that the interest amount shown on your Form 1099-INT was $800. You gave your sister her $320 share and you kept your $480 share. But the Form 1099-INT shows $800, all in your name. If you report less than $800, the IRS matching program will find you. So what you want to do is to report the full $800, as shown on your Form 1099-INT, but then "back out" the $320 that is really your sister's. You do this by designating the $800 as "Nominee" interest, and entering $320 as the adjustment amount. We'll do the rest. Specifically, we'll enter the $320 on a separate line on Schedule B or Schedule 1 and label it to indicate that it is a nominee adjustment. Then we'll subtract the $320 from the total $800, so that you'll be taxed only on the $480 that is yours.
"OID" stands for "original issue discount." Enter the full amount of interest (as shown on your 1099-OID) in the "Gross Int" entry. Enter the amount of OID adjustment in the "Adj Amt" column. You will typically have an OID adjustment if you didn't buy the security at its original issue, or if it is a so-called "stripped bond" or "stripped coupon" (including zero coupon U.S. Treasury-backed securities), or if you sold it part way through the year. The OID adjustment you enter may be either positive (which will decrease the taxable interest) or negative (which will increase the taxable interest). For help figuring the amount of the OID adjustment, you'll have to refer to IRS Publication 1212.
If you have an OID adjustment, you need Form 1040; you can't use Form 1040A.
If you bought or sold a bond between interest dates, you may have an accrued interest adjustment. For a further explanation, see the Interview topic on Interest Income. An adjustment entered as a positive amount will decrease the taxable interest. An adjustment entered as a negative amount will increase the taxable interest.
If you have an accrued interest adjustment, you need Form 1040; you can't use Form 1040A.
If you received interest this year on a bond you purchased at a premium in 1988 or later, you may offset the interest by amortizing the premium. See IRS Publication 550, Investment Income and Expenses, for details. Once you determine the amortization amount, enter the amount as a positive adjustment and your taxable interest will be decreased by the amount of the adjustment.
Use Code 5 for US Savings Bond adjustments.
Situations in which you may be able to take a Savings Bond adjustment include:
The bond was series E or EE and you elected to report interest each year. You can take an adjustment for the amounts you included in income in previous years.
You inherited the bond. You can take an adjustment for any interest reported by the person from whom you inherited the bond before his or her death, on his or her final return, or by the estate on the estate's tax return.
You received the bond in a taxable distribution from a retirement or profit-sharing plan. You can take an adjustment for the interest portion of the amount that is taxable as a distribution from the plan rather than taxable as interest.
Other adjustments that can offset amounts reported to you on Form 1099-INT are:
An adjustment to exclude interest on "frozen" deposits that you couldn't withdraw because the bank was bankrupt or insolvent. See IRS Publication 550, Investment Income and Expenses.
An adjustment to exclude up to $1,000 a year of interest from installments of life insurance that you receive as a result of your spouse's death before October 23, 1986. See IRS Publication 525, Taxable and Nontaxable Income.