Tax Reporting: Interest from US Government Obligations

Interest on US obligations is reported on Form 1099-INT in the year the Treasury bill or note matures or you sell it, which may not be the year it was purchased.  Refer to IRS Publication 550, Investment Income and Expenses, and consult your tax advisor for more information on reporting interest on US government obligations.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax: Interest Income: US Government Obligation Interest

Interest from US obligations such as US Treasury bills, notes and bonds issued by any agency or instrumentality of the United States is subject to federal income tax.  Treasury bills generally are short-term issues with maturities not exceeding one year issued at a discount.  Interest on a Treasury bill is the difference between the discounted price you originally paid and the face value you receive at maturity (or what you receive if you sell the bill before maturity).  No interest payments are received during the life of the bill. Treasury notes and bonds have longer maturities and generally pay interest semi-annually.  Refer to IRS Publication 550, Investment Income and Expenses, for further information.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Interest Income: Where is interest income reported?

Form 1099-INT reports interest income paid to your securities and commodities account for the year, including securities held outside the US (i.e., bonds issued by foreign entities).  Interest income may be subject to backup withholding. Form 1099-INT reports any backup withholding as federal income tax withheld.   Original issue discount (OID), although a form of interest, is reportable on Form 1099-OID. 

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax: Interest Income

Interest income is interest earned or paid to your account, for example from corporate bonds, municipal bonds and unit trusts, for the year.

Interest that you receive may either be taxable or non-taxable (tax-exempt) income.  Taxable interest includes interest received from bank accounts and tax-exempt money market income.  Taxable amounts received from money market funds are reported as dividends.

Taxable interest is also received on US Treasury obligations such as Treasury bills, Treasury notes and Treasury bonds, and certain preferred securities. 

Tax-exempt interest includes exempt-interest dividends from a mutual fund or other regulated investment company (RIC) and interest on state and local government issued municipal bonds. Tax-exempt interest may be subject to the Alternative Minimum Tax (AMT).

If you have a bond, note or other debt instrument issued at a discount, part of the original issue discount (OID) may have to be included in income each year as interest as it accrues over the term of the debt instrument.  Refer to IRS Publication 1212, Guide to Original Issue Discount Instruments.

For general information, refer to IRS Publication 550, Investment Income and Expenses, and consult your tax advisor for more information. 

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: How to Contact the Internal Revenue Service (IRS)

To request federal tax forms, call 800.829.3676 (800/TAX-FORM), or you may access the IRS website.  If your question concerns a US individual tax return call 800.829.1040.  If you have a US business return question, call 800.829.4933.

Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax Reporting: Income tax withholding on IRA distributions

In certain circumstances Federal income tax is required to be withheld on an IRA distribution at a rate of 10% if an election is not made at the time of your IRA distribution.  You may elect to have no tax or a different amount withheld.  If you roll over your employer-sponsored 401(k) retirement plan assets to an IB IRA account, the distribution may be subject to a mandatory withholding rate of 20%.  Any amount not rolled over is subject to tax, and if you are under 59½, an additional 10% early withdrawal penalty may apply.  You must roll the entire distribution over, including the amount withheld, within 60 days for the rollover to be tax-free. Income tax is not withheld on a direct rollover.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: "Taxable amount not determined" is Checked on Form 1099-R Despite a Taxable Amount Being Reported

The IRS requires that we report the full amount of your IRA distribution in Box 1 (Gross distribution). In Box 2a (Taxable amount), we also report the full amount distributed unless you have directly rolled (transferred account to account) your funds to another IRA custodian/trustee. If funds are distributed directly to you we cannot determine the taxable amount, since we do not know whether you have made any non-deductible (after-tax) contributions to this IRA account. Box 2b is checked to indicate that we have not determined the taxable amount. Please consult your tax advisor to determine if you have made any non-deductible (after-tax) contributions to your IRA account, which may lower your taxable amount.

Refer to IRS Publication 590, Individual Retirement Arrangements (IRAs), for additional information on figuring taxable and nontaxable amounts, and consult your tax advisor.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: Form 5498

Form 5498,"IRA Contribution Information", is an information form used to report contributions and rollovers to Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Form 5498 also reports the Fair Market Value (FMV) of your IRA account as of year-end.

Please check Box 11 on the form, if you take a required minimum distribution (RMD) for all years after you have attained age 70 1/2. If you attained 70 1/2 years or older in the previous tax year, Federal law requires that you begin taking minimum distributions from your Traditional, Rollover or SEP IRA account(s) in the following calendar year.

Plan custodian must distribute 5498s to participants and the IRS no later than May 31 of each calendar year. The timing of this form is due to the fact that contributions for the prior year may be made up to the filing date of your return (April 15). For SEP IRA's contributions maybe made up to the filing date of the return plus extensions.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: How does a trustee-to-trustee transfer differ from a rollover?

A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not considered a rollover. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not subject to the 1-year waiting period required between rollovers.  Trustee-to-trustee transfers are not required to be reported on Form 1099-R.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: Form 1099-R Reporting IRA Rollovers

A rollover occurs when money is distributed from one tax-deferred account and deposited within 60 days to another tax deferred account. There are two types of IRA rollovers: 1) a direct rollover, which occurs when funds are transferred directly from one account to another account by the account custodians/trustees, and 2) a distribution, which is made directly to you and within 60 days you deposit the full amount (including any taxes withheld) into a new IRA or other tax deferred account. The custodian/trustee distributing the funds will issue you a 1099-R reporting the payment/transfer of funds. The code in Box 7 indicates what type of payment was made. The custodian/ trustee receiving the IRA funds will issue a Form 5498 in May reporting the contribution to the receiving IRA account which reports to the IRS that you deposited the money into another IRA.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

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