Original issue discount, box by box

Form 1099-OID, Original Issue Discount, reports a type of interest that builds up on a debt instrument issued for less than it pays at maturity. A bond, note, or CD bought at a discount earns that discount gradually over its life, and the issuer or broker reports the yearly amount on a 1099-OID. You include box 1 and box 8 amounts as interest income on your return, generally through Schedule B, even in a year the instrument paid you no cash.

Original issue discount is the difference between what a debt instrument pays at maturity, its stated redemption price, and the lower price it was issued for. A zero-coupon bond bought for $8,000 that pays $10,000 at maturity has $2,000 of OID. That discount is really interest, so tax law spreads it across the years you hold the bond and taxes a slice each year rather than all at once at the end.

OID is often called phantom income because you report it before any cash arrives. The instrument was priced low precisely because it pays its return at the end, so tax law treats a portion of that built-in gain as interest you earn each year. You include the yearly OID in income as it accrues, and your basis in the bond rises by the same amount, so you aren't taxed twice when it matures or you sell.

A payer files a 1099-OID for each holder whose OID for the year is $10 or more, when the instrument has a term longer than one year. A form is also required any time backup or foreign tax was withheld, even if the OID is under $10. Recipients generally get their copy by January 31, or February 15 when it arrives as part of a consolidated broker statement.

Taxable OID from box 1 and Treasury OID from box 8 are interest income. You report them on Form 1040, line 2b, and list them on Schedule B when your total interest and ordinary dividends are more than $1,500. Tax-exempt OID from box 11 goes on line 2a with your other tax-exempt interest. You don't attach the 1099-OID itself, but you keep it with your records.

Box 1 is regular taxable OID on corporate and most other debt instruments. Box 8 is OID on U.S. Treasury obligations, kept separate because Treasury interest is exempt from state and local income tax even though it's fully federally taxable. The two are never combined on the form, so Treasury OID doesn't get taxed by your state along with your other OID.

No. OID on U.S. Treasury obligations, shown in box 8, is federally taxable but exempt from state and local income tax. That's why it sits in its own box rather than in box 1. When you file a state return, you generally subtract box 8 Treasury OID, so keep the form to support that state adjustment.

Box 11 shows tax-exempt OID, the accrued discount on certain municipal bonds and similar obligations that aren't subject to regular federal income tax. You still report it, on Form 1040 line 2a with your other tax-exempt interest, so the IRS sees the amount. Part of the OID on a stripped tax-exempt bond can be taxable, and specified private activity bond OID can matter for the alternative minimum tax, so check Publication 1212 if either applies.

Acquisition premium is the extra you paid above the instrument's adjusted issue price when you bought it after it was first issued. It reduces the OID you actually have to report, because part of the discount was already paid for in the purchase price. On a covered security your broker often nets box 6 against the OID and shows the adjusted figure in box 1 or box 8. If not, you subtract it yourself, and it shows as an OID adjustment on Schedule B.

Box 3 shows interest or principal you forfeited for taking money out of a time deposit early, such as cashing a CD before it matured. It's a penalty, but a deductible one. You claim it as an adjustment to income on Schedule 1, so it lowers your adjusted gross income. You don't reduce the OID in box 1 or the interest in box 2 by the box 3 amount, since it's handled separately.

If you held the instrument for only part of the year, or bought it from another holder, the OID in box 1 might not be the exact amount you should report. For a covered security your broker usually reports a net figure already adjusted for your holding period and any acquisition premium. If it's not covered, you refigure the OID for the days you held it using the daily OID tables in Publication 1212, or Publication 550 for the reporting rules.

A covered security is a debt instrument your broker is required to track basis on, generally one you acquired after the rules took effect. For a covered security the broker reports OID net of acquisition premium and adjusted for your holding period, so the box 1 or box 8 figure is usually the number to report. For a noncovered security you're more likely to have to refigure the OID yourself, which is where Publication 1212 comes in.

No. Like most 1099 forms, you keep the 1099-OID with your records rather than attaching it to your return. You report the numbers it shows, box 1 and box 8 as taxable interest on line 2b, box 11 as tax-exempt interest on line 2a, and list them on Schedule B if your interest and dividends pass $1,500. Hold onto the form in case the IRS matches its copy against your return.

You still have to report the OID. The $10 filing threshold controls whether a payer must send the form, not whether the income is taxable. If you held a discounted bond and no form arrived, you figure the OID yourself using the daily OID tables in Publication 1212, or the rules in Publication 550, and report it as interest. Missing the form doesn't remove the obligation to include the accrued discount.

No. The generator helps you fill out and produce a completed 1099-OID that you can review, print, and give to the recipient, or use to check the figures. It doesn't transmit anything to the IRS, it isn't a substitute for tax software or a preparer, and it isn't tax advice. You're responsible for the accuracy of the amounts and for meeting your own filing and furnishing deadlines.