Form 1099-OID is used to report original issue discount (OID) and certain other items related to debt instruments sold at a discount to investor/taxpayers.
Original Issue Discount (OID) is the difference between the face amount of a debt instrument (typically a bond) and the price that an investor paid for the debt instrument or bond at the time it was issued. When the bond is redeemed on its maturity date, the face amount of the bond will be paid to the investor.
Box 1 Original Discount Amount (OID) is taxable interest. OID accrues over the life of the underlying bond irrespective of the receipt of any payments from the issuer during that time. The amount reported in Box 1 is the amount of the OID that is allocated to the current tax year.
Box 2 Other Periodic Interest is the actual interest paid on the debt instruments (or bonds) during the year, separate from the OID amount. Important points:
- If the taxpayer held the obligation the entire year, the amount in Box 2 is reported as interest income in Schedule B.
- If the taxpayer disposed of the bond or acquired it from another holder during the year, see Publication 550 - Investment Income and Expenses for reporting instructions.
- If there is an amount in both Boxes 2 and 8, the amount in Box 2 is interest on a U.S. Treasury obligation and it is exempt from state and local income taxes, so it should also be added to the menu line State Exempt Interest so it can flow into the resident state tax return.
Box 3 Early Withdrawal Penalty represents any interest or principal forfeited when the investor/taxpayer surrendered the investment (withdrew the money) before the maturity date of the obligation. The amount entered here will flow to Schedule 1 as an adjustment to income.
Box 4 Federal Tax Withholdings include backup withholdings withheld from the interest paid.
Box 5 Market Discount represents, for covered securities, the amount of market discount that accrued on the debt instrument during the year as a result of the taxpayer having notified the payer that they are electing to include the market discount in their income as it accrues. The treatment given to the market discount depends on whether the security is taxable or tax-exempt:
- If the underlying security pays taxable interest (reported in either Box 1 or Box 8), market discount will be added to the interest reported on Schedule B.
- If the underlying security pays tax-exempt interest (reported in Box 11), don't enter this amount here but add it to the amount in Box 11.
Generally a bond acquired at original issue at less than face value is subject to market discount equal to the excess of the stated redemption price of the bond at maturity over the basis at the time it is acquired.
Box 6 Acquisition Premium is, for a covered taxable security, the amortization for the year, and it reduces the amount of OID that is considered to be taxable interest (the amount in Box 1). This amount reduces taxable interest and is notated "OID Adjustment" on Schedule B (Form 1040 or 1040-NR).
Box 7 Description shows information about the debt instrument, including the identification (CUSIP) number, the interest or coupon rate, issuer, and year of maturity. This is for informational purposes and isn't entered anywhere in TaxSlayer Pro.
Box 8 Original issue discount on U.S. Treasury obligations shows the OID amount on a U.S. Treasury obligation for the portion of the tax year that the taxpayer owned the Treasury obligation. This OID amount will be added to the Box 1 amount on Schedule B. It is tax-exempt for state and local income tax purposes, so it should also be added to the menu line State Exempt Interest so it can flow into the resident state tax return.
Unusually, this amount can be negative, representing a deflationary adjustment to a Treasury obligation that is indexed to inflationary-determined rates.
Box 9 Investment Expenses is the taxpayer's share of any investment expenses from a single class REMIC. The amount is included in Box 2 and is for informational purposes only. (Prior to the passage of the Tax Cuts and Jobs Act of 2017, these expenses could be deducted as an itemized deduction on Schedule A (Form 1040) subject to the 2% AGI limitation. Starting in 2018, these expenses are no longer deductible as an itemized deduction.)
Box 10 Bond Premium shows, for covered taxable securities, the bond premium amount for the year. (Bond premium generally occurs when a covered security is acquired for an amount greater than the face value of the bond and the stated redemption price of a bond at maturity is less than the basis in the bond at the time it was acquired.) This amount reduces taxable interest and is notated "ABP Adjustment" on Schedule B.
Box 11 Tax-exempt OID is generally reported as tax-exempt interest on Form 1040. However, part of the OID on a stripped tax-exempt bond, or a stripped coupon from such a bond, acquired after June 10, 1987 could be taxable. See Publication 1212 if this applies for instructions on how to calculate the taxable portion.
Boxes 12 - 14 show state withholding information related to the income. Enter the state abbreviation, the state ID number if provided, and the amount of tax withheld. The amount will flow to the state return for the state indicated.
To enter Form 1099-OID on Schedule B in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Interest or Dividends (Sch B, 8815)
- Form 1099-OID - Enter the payer's name along with the Boxes 1, 2, 8, and 11 amounts, if present. When finished, select OK.
- In the Schedule B - Form 1099-OID Edit Menu enter any other amounts reported on the form.
Note: In the process of entering the form, if you receive the error message "Sum of Nominee Interest, Decedent Interest, OID Adjustment, Accrued Interest, ABP Adjustment and Accrued Market Discount Must be Less than or Equal to Total Interest", see the knowledgebase article below for help resolving it.
To enter Form 1099-OID on Schedule B in TaxSlayer ProWeb, from the Federal Section of the tax return (Form 1040) select:
- 1099-INT, DIV, OID
- Interest or Dividend Income
- Original Issue Discount, Form 1099-OID - Click the circle, the click Continue
- Enter the payer's name. The payer's EIN and address are optional.
- For an MFJ return, Indicate if the form is for the taxpayer, spouse, or joint
- Enter the amounts as reported on the form.
Note: This is a guide on entering Form 1099-OID into TaxSlayer Pro. This is not intended as tax advice.