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I Received a Surprise 1099-INT

This article was written by in Taxes. 14 comments.

The other day, I received a tax form (1099-INT, income from interest) in the mail. The form came from Bank of America. I was not aware of having an interest-earning account at Bank of America. My only experience with this particular financial company was when a Wachovia credit card I have (unused but held to avoid fees on my checking account) was transferred to Bank of America after Wachovia decided to get out of that business.

This credit card could not have been the source of the unknown interest, so I called the customer service phone number conveniently located on the tax form. Someone from Bank of America answered right away. After providing my account number, the customer service representative quickly had an answer for me, even before I asked the question.

The interest reported on this 1099 apparently comes from the security deposit I placed with my landlord company when I moved in last year. At first, I was disappointed that I would have to pay tax on this interest even though I have no access to the account. However, I added the interest information to my tax return in progress at TaxAct, and it resulted in no change in my tax due. Perhaps it’s just not a significant enough amount.

Updated February 6, 2012 and originally published January 24, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar The Saving Freak

I had forgotten about an account we keep a little money in that is at our local bank. Thought I was pretty much done with the taxes now I have to go back and fill that interest in. I wish we would go to a simpler tax system.

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avatar Nicole

LOL! As soon as I read your post heading I said to myself “must be the good old rental deposit account.” For the first time this year, I actually remembered that it would be coming (also for the first time, I’m ready to file my taxes early, and am just waiting for that last form from my landlord). Usually, that interest is pretty negligible anyway.

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avatar Brian

I am under the impression (possibly mistaken) that unless your 1099-INT is above $100 it won’t affect your tax liability, though of course you should still enter it on the form.

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avatar Rev

How is TaxAct working for you? I have never used it. I am looking for the best option for cheap e-filing for the year. I can handle doing the details of my taxes but would love to find a good place online since now I make too much to use the IRS free file finally. Would you recommend it?

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avatar ChristianPF

@Rev and Flexo

I would like to hear what you think about it as well… I have always just gone to the IRS site to get the free Federal link to a bunch of tax prep sources. I have yet to try TaxAct

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avatar Luke Landes

Rev & Christian: TaxAct will be the topic of a future post… when it comes to my final, final version of my taxes, I will be filing with the help of a tax accountant (if I find one). In short, it asks the right questions and tallies the total, offering suggestions and reminders, very similar to TurboTaxOnline.

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avatar Jacob

Taxes jump incrementally. I forget what the jump is, $50? So anyone in that range pays the same tax.

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avatar vh

That’s interesting. Now that you know how much the interest is and where it’s being kept, when you’re ready to move can you get the landlord to refund the interest as well as the deposit?

It’s been 20 years since I’ve rented. Sure don’t remember any landlords returning a deposit plus interest. We felt lucky just to get the deposit back at all!

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avatar Taxed2death

I sold my shares of my company to my brothers and got a lump sum + monthly payments for the next 7 years. We were an “S” Corp. Now I get a 1099-INT in the mail listing interest income in the amount of $132,000.00 with nothing withheld. Generally speaking, am I liable for Federal Income Tax on this $132K?

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avatar Dave

The fact that you got the 1099-INT means the account is an escrow account taken out in your name by the landlord. The money, including interest, is yours (though you cannot withdraw it yourself without court papers). Most states require the landlord to pay you this interest out of the account yearly, but even if yours doesn’t, since it is in your name, he/she has to give it to you upon termination of the lease (if not yearly, probably varies by locality), otherwise they’re in big trouble. While you can’t withdraw from the account without his signature, the money is yours and is in your name.

The small amount may or may not affect your taxes, it depends on how close you were to the next “tier”. But whatever little bit o’ money it is, will be yours someday :-)

In my state they allow me to just keep the account in my name as long as I pay the interest to the tenant yearly. It’s easier to just use the same account year over year rather than opening a new one for every new tenant. In that case I have to claim the interest myself then deduct it as a business expense.

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avatar Bob

I have used taxact to do my returns for the past 5 years. It has so far been a heck of a deal I wish I was aware of it earier. It was suggested I go there by the IRS after the “People” screwed me for three years. I’d say go for it!

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avatar remesp

Dave (comment #10),
You said you keep the account in your name and claim the interest yourself, and I presume give the interest to the tenant and reflect that as a business expense. Do you provide the tenant a 1099 then for that interest?

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avatar Dave

I declare it as “nominee interest” (received on behalf of someone else), which requires you to file Sched B but results in a net $0 interest against me. I’ve heard of people doing it the expense way but if your loss on the property gets limited, then technically some of that interest counts against you, and I don’t think its the totally legit way to do it anyway. Its such a small amount it doesn’t really matter that much. In fact only 2 years has it been more than $10 anyway, and that’s only because I shopped around a bit to find a good passbook savings rate for them, and no fees for me. Some years its been like $2. My state requires you to keep it in an in-state bank, most of which are the large monopolies that give like 0.02% interest. There is a local bank that gives 1 or 2% and lets me withdraw it as an official bank check for no fee once per year so I use them.

I can’t issue a 1099 since I’m not a financial institution. If its over $10, the tenant is responsible for declaring it as “interest received not reported on form 1099″ on their taxes.

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avatar remesp

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