Each year, bondholders receive IRS tax Form 1099-INT or Form 1099-OID to report their annual taxable interest income when filing tax returns. This document offers guidelines for declaring tax on income generated from interest and bond taxation rules for government, corporate, and municipal bonds vary.
Key Takeaways
- The interest earned on fixed-income investments like bonds and notes is often subject to income tax.
- There are different taxation rules for government, corporate, and municipal bonds.
- IRS tax form 1099-INT is sent to bondholders who declare tax on income generated from interest.
Government Bonds
The interest from Treasury bills, notes, and bonds is taxable at the federal level but not at the state and local levels. Some U.S. government agency securities, such as those issued by Fannie Mae, are taxable at the federal level but exempt from state and local taxes.
Zero-Coupon Bonds
Although they have no…
