Form 1099-OID

Why do you need to file a 1099-OID?

A 1099-OID is necessary to report the taxable interest income that’s deemed to have been earned by the holder of a debt instrument with an Original Issue Discount (OID). Filing this form serves a few purposes:

Accrual of Interest Income

• OID represents the difference between the stated redemption price at maturity (usually the face value) and the instrument’s original issue price. This difference is treated as interest income that accrues over the life of the instrument. Even if the holder doesn’t receive an actual interest payment during the year, they’re deemed to have earned a portion of the OID, which is taxable.

Consistent Reporting

• The 1099-OID ensures consistent reporting of this accrued income. It informs the IRS that the holder has earned a specific amount of interest income for the year, ensuring that individuals correctly report and pay taxes on this income.

IRS Tracking

• By requiring issuers or middlemen to provide both the IRS and the debt holder with a record of the OID accrued for the year, the IRS can better track and match reported income on individual tax returns.

Determination of Basis

• The accrued OID gets added to the holder’s cost basis in the debt instrument each year. This adjusted basis will be necessary when determining gain or loss upon the sale or redemption of the instrument.

Potential Penalties for Non-compliance

• Entities required to issue a 1099-OID that fail to do so may face penalties. Similarly, individuals who don’t report OID income may face interest, penalties, or audits.

Other Information

• The 1099-OID can also report other types of interest and amounts withheld, helping taxpayers and the IRS have a full picture of the debt instrument’s tax implications for the year.

In summary, filing a 1099-OID ensures that all taxable interest, including the OID accrued, is appropriately reported to the IRS. This ensures tax compliance and helps individuals account for the correct amount of taxable interest income.

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Who needs to file a 1099-OID?

A 1099-OID (“Original Issue Discount”) needs to be filed by the issuer of the debt instrument or any middleman who holds the instrument as a nominee and is in receipt of OID on behalf of the actual owner. Here’s a breakdown:

Issuers

• Entities that issue bonds or other debt instruments at an Original Issue Discount are generally responsible for filing 1099-OID forms. This would typically include corporations, government agencies, or other entities issuing such securities.

Middlemen

• If you’re not the issuer but hold an OID instrument as a nominee (i.e., you hold the instrument on behalf of someone else, the actual owner), you may need to file a 1099-OID. This could apply to financial institutions or brokers that hold such instruments in customer accounts.

Threshold

• Typically, a 1099-OID needs to be filed if the OID accruable by a holder is $10 or more in a year.

Recipients

• While the aforementioned entities are responsible for filing the 1099-OID with the IRS, they must also provide a copy to the individual or entity who earned the OID income. This recipient does not “file” the 1099-OID in the same way but uses the information to report the income on their tax return.

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Are there any exemptions to filing a 1099-OID?

Yes, there are certain exemptions and exceptions to filing a 1099-OID. Here are some scenarios where a 1099-OID may not need to be filed:

Short-Term Obligations

• If the debt instrument is a short-term obligation with a fixed maturity date of one year or less from its issue date, a 1099-OID typically isn’t required.

Tax-Exempt OID

• Obligations that pay a tax-exempt OID do not usually need a 1099-OID.

Threshold Amount

• If the OID accruable by the holder is less than $10 for the year, the issuer or middleman usually isn’t required to file a 1099-OID.

Foreign Recipients

• Payments made to certain foreign recipients might be exempt, as they are covered by other forms and rules. However, this can be complex, and it’s essential to review IRS rules on payments to foreign persons.

Certain Gaming Winnings

• If the winnings are from a state-conducted lottery, they may be exempt.

Certain Types of Debt Instruments

• Some types of debt instruments might have specific exemptions based on the nature and terms of the obligation.

U.S. Savings Bonds

• These do not require a 1099-OID.

IRA Accounts

• If an OID is received on behalf of an IRA, it may not necessitate a 1099-OID for the beneficiary.

Real Estate Mortgage Investment Conduits (REMICs)

• Regular interests from REMICs might have separate reporting requirements and might not be reported on a 1099-OID.

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What is the deadline for filing a 1099-OID?

The deadline for filing a 1099-OID can vary based on the several factors:

Sending to Recipients

• The 1099-OID form should be furnished to the recipient by January 31 of the year following the payment year.

Filing with the IRS

• If you are filing on paper, the 1099-OID forms should be submitted to the IRS by February 28 (or the last day of February) of the year following the payment year.
• If you are filing electronically, the deadline extends to March 31 of the year following the payment year.

However, if any of these dates fall on a weekend or a holiday, the deadline may be extended to the next business day. Additionally, if you discover an error after the initial filing, there are separate deadlines for corrected forms.

Remember, missing these deadlines can result in penalties, so it’s crucial to stay informed and act timely.

 

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What is required to file a 1099-OID?

To file a Form 1099-OID, you will need certain information about both the payer (the person or business making the payment) and the recipient (the person or business receiving the payment). Here’s what is required to file a 1099-OID:

Information about the Payer

• Payer’s Name and Address
  • Provide your legal business name and mailing address.
• Payer’s Taxpayer Identification Number (TIN)
  • This could be your Employer Identification Number (EIN) or your Social Security Number (SSN), depending on your business structure. If you’re a sole proprietor, you might use your SSN; if you’re a business entity, you’d use your EIN.
• Payer’s Phone Number
  • Include a phone number where the payer can be reached.

Information about the Recipient

• Recipient’s Name and Address
  • Provide the legal name and mailing address of the individual or business receiving the payment.
• Recipient’s Taxpayer Identification Number (TIN)
  • This could be the recipient’s Social Security Number (SSN) if an individual or their Employer Identification Number (EIN) if a business entity.

Form specific information

• Box 1 – Original issue discount for this year

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What are the penalties for 1099-OID?

Please see the penalties section for details.

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Do you need to e-file a 1099-OID?

Please see the e-file section for details.

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Is state filing required for the 1099-OID?

Currently, 1099-Prep does not support state filing for the 1099-OID form. If you have a filing obligation in multiple states or are unsure about the rules for a specific state, it can be quite challenging to keep track of all the requirements. It’s advisable to consult the revenue department website of the relevant state(s) or work with a tax professional who’s knowledgeable about multi-state filing requirements.

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What elements make up a 1099-OID form?

The 1099-OID contains several boxes, each designed to report specific types of income or information. Here is a breakdown of the boxes on the 1099-OID:

Box 1 – Original issue discount for this year

Report the taxable OID on the obligation for the part of the year it was owned by the record holder. Do not include the amount reported in box 8.

Box 2 – Other periodic interest

Enter any qualified stated interest paid or credited on this obligation during the year. However, you may report any qualified stated interest on Treasury Inflation Protected Securities in box 3 of Form 1099-INT rather than in box 2 of Form 1099-OID. Interest reported here must not be reported on Form 1099-INT.

Box 3 – Early withdrawal penalty

Enter interest or principal forfeited because of an early withdrawal of time deposits, such as an early withdrawal from a CD, that is deductible from gross income by the recipient. Do not reduce the amounts in boxes 1 and 2 by the amount of the forfeiture.

Box 4 – Federal income tax withheld

Enter backup withholding. For example, if a recipient does not furnish its TIN to you in the manner required, you must backup withhold. The applicable interest rate applies to amounts required to be reported in boxes 1, 2, and 8, but is limited to the cash paid on these obligations. Before applying the applicable interest rate, you may reduce the amounts reported in boxes 1 and 2 by the amount reported in box 3.

Box 5 – Market discount

For a covered security acquired with market discount and OID, if the taxpayer notified you that a section 1278(b) election was made, enter the amount of market discount that accrued on the debt instrument during the tax year in the amount of $10 or more.

Box 6 – Acquisition premium

For a covered security acquired with acquisition premium, enter the amount of premium amortization for the part of the year the debt instrument was owned by the holder.

Box 7 – Description

Enter the CUSIP number, if any. If there is no CUSIP number, enter the abbreviation for the stock exchange, the abbreviation for the issuer used by the stock exchange, the coupon rate, and the year of maturity. If the issuer of the obligation is other than the payer, show the name of the issuer.

Box 8 – Original issue discount on U.S. Treasury obligations

Enter the OID on a U.S. Treasury obligation for the part of the year it was owned by the record holder. Do not include this amount in box 1. You may enter any qualified stated interest on the Treasury obligation in box 2. The amount in box 8 may be a negative number.

Box 9 – Investment expenses

Enter the regular interest holder’s pro rata share of investment expenses.

Box 10 – Bond premium

For a taxable covered security acquired at a premium, enter the amount of bond premium amortization allocable to the interest paid during the tax year, unless you were notified in writing that the holder did not want to amortize bond premium.

Box 11 – Tax-exempt OID

For a tax-exempt obligation that is a covered security acquired on or after January 1, 2017, enter the OID for the part of the year it was owned by the record holder. You may, but are not required to, report the OID for a tax-exempt obligation that is a covered security acquired before January 1, 2017.

Box 12/13 – State/Payer’s State No.

This box indicates the state for which the income and tax details are being reported. It will also include the payer’s state identification number, which is an identifier assigned by the state’s revenue or taxation department.

Please see the state filing section for details.

Box 14 – State tax withheld

Enter the amount of state income tax withheld.

Remember, not all boxes will be filled out on every 1099-OID form. Only the relevant boxes for the specific payments made will have amounts or indicators.

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Can you correct a 1099-OID?

Yes, you can correct a 1099-OID. Please see the corrections and negations section for details.

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