So what exactly is reported on the 1099?

• Author: Pry, Carl G.
• Position: Marketing Compliance - Regulations of Internal Revenue Service

It's getting to be that time of year again--tax time. That means you have to start compiling information for your banks 1099 reporting. In this two-part series, we'll sort out a continuing source of confusion: what precisely to include' as interest on 1099-INT forms. since more than one set of rules and regulations defines the term "interest."

The commonly understood definition of interest is easy enough. According to Regulation DD (Truth in Savings), which governs consumer-purpose deposit accounts, "interest means any payment to a consumer or to an account for the use of funds in an account, calculated by application of a periodic rate to the balance." The instructions for IRS Form 1099-INT require reporting of interest income "for each person ... to whom you paid amounts ... of at least $10." No problem there--if $10 or more in interest is credited to a customer's account(s) and is available for withdrawal, it is reportable.

But what about bonuses and other giveaways? Are these included as interest and reported on the 1099-INT? It depends on the type and amount of the bonus. Under Reg. DD, a "bonus" is defined as "a premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise or any equivalent) given or offered to a consumer during a year in exchange for opening, maintaining, renewing or increasing an account balance." The item's cost to the bank is used to determine its value. Note the $10 minimum; if the value is $10 or less, it is not considered a bonus under Reg. DD, and so advertising and disclosure rules do not apply. Waiving a bank-imposed fee (like check printing charges) is not a bonus.

Unfortunately, the IRS rules don't parallel Reg. DD. Under the Internal Revenue Code, reportable amounts include "interest on deposits with...