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Will Form 8815 Taxable: What You Should Know

For the IRS, a report of interest income means that the interest payment has been made. Income tax withholding is based on how much the income is (or is not) reported as interest. Here are three important points about the 1099-INT: If you pay interest in any form, including direct, mutual, or certificate of deposit (CD), the taxpayer must report that income. However, if you can prove you paid no interest, you will not have to report that payment on your income tax return. So, if you paid directly to a bank, then you do not need to include this payment on your income tax return. But if you paid a loan through a certificate, even though the interest payment was not reported as interest under a 1099-INT, you do have to report it on your income tax return and may owe tax on it. If you receive a 1099-INT, you should be sure to file an income tax return with the tax agent you work with about how you are going to handle it. If you don't report the interest, whether you pay it to the same bank or other payer and how you pay it (and what form you used to pay it), the IRS will not consider the payment reported on the 1099-INT. How to File Your Income Tax Return If an interest payment is not reported on a 1099-INT, there are three main situations you might face. You would owe taxes under standard interest calculations. You may owe tax on interest on principal, even though you know that you paid directly to the bank. Or you might not have to report payments of interest on the return because you didn't actually receive it: If you paid money directly to a bank, this may be a “pay-as-you-earn” (PAY) payment, where you pay an early withdrawal penalty plus interest. If you paid money directly to a financial institution, and it was a check you mailed, you may have to include the interest payment on your taxes, but you may also have to pay taxes on the actual money you receive. What is the maximum tax penalty? If you received interest payments from banks or other payers with a 1099-INT, you will have to include the “regular” taxes on the balance. The amount of tax you will owe is based on the actual payments and the current tax system.

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