Do I have to pay tax on original issue discount (OID)?

Interest that you receive or that is credited to your account and can be withdrawn is taxable income and must be reported on your tax return. Taxable interest to report on your tax return includes interest you receive from bank accounts, loans you make to others, and interest from most other sources.

Original issue discount (OID) is a form of taxable interest that must be reported on your tax return. If you have a bond, note, or other long-term debt instrument that was originally issued for a lower price than its redemption price at maturity, part of the original issue discount (the amount that it increases in value each tax year towards maturity) must be included in your taxable income as interest on your tax return. You report original issue discount (OID) as it accrues, whether or not you receive any taxable interest payments from the bond issuer.

You must give the payer of your interest income your correct social security number. If you do not, you may be subject to a tax penalty and to back-up tax withholding. For more information see "What is Form W-9 and backup tax withholding?"

You should receive Form 1099-INT for interest income and an Form 1099-OID for original issue discount from any paying institutions. You may receive a similar or substitute tax statement from each payer. Payers of interest of $10 or more are required to furnish you and the IRS with this tax information. This tax information is also usually included on your year-end account statement. Even if you do not receive a tax statement or Form 1099 you are still responsible for reporting all taxable interest income on your tax return. The IRS is notified of all interest paid by financial institutions on magnetic media. If you do not include your interest income on your tax return the IRS will know when their computer system matches your tax return to the tax information provided by payers. You will then be notified, usually by mail, of the amount of additional tax, interest, and penalties that you owe.

Interest of $1,500 or Less
If your taxable interest income is $1,500 or less, you need to show that taxable income on Line 8a of Form 1040 or Form 1040A, or Line 2 of Form 1040EZ.

Interest of More Than $1,500
If your taxable interest income is more than $1,500 you must file Form 1040 or Form 1040A. You cannot file Form 1040EZ. Start by showing your interest income on Form 1040, Schedule B, or on Schedule 1 of Form 1040A. FolIow the instructions and this will carry over the information to Line 8a of Form 1040 or Form 1040A.

Related tax information about original issue discount (OID)

Tax Directory Topics:
Income Related Questions and Answers

IRS publications about original issue discount (OID):
For further tax information about original issue discount (OID) see IRS Publication 1212,

Original Issue Discount. If you need additional information refer to IRS Publication 550,

Investment Income and Expenses. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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