IRS Schedule B (Form 1040), officially titled “Interest and Ordinary Dividends,” is a supplemental tax form required for taxpayers who earn more than $1,500 in interest or dividend income during the tax year or who meet certain criteria involving foreign financial accounts or specific bond interests.
Purpose of Schedule B
Schedule B serves to itemize interest income and ordinary dividends, making it easier for taxpayers and the IRS to ensure all taxable income is properly reported. It complements the main tax return, Form 1040, by detailing income from sources like savings accounts, bonds, mutual funds, and stocks.
When to File Schedule B
You must file Schedule B if any of the following apply:
- Your taxable interest income exceeds $1,500.
- Your ordinary dividend income exceeds $1,500.
- You have a foreign financial account or are involved with foreign trusts.
- You received interest from seller-financed mortgages.
- You claim an education-related exemption on U.S. Savings Bonds interest.
- You received original issue discount income as a nominee.
If your interest and dividends are each $1,500 or less, and you have no foreign accounts or special situations, you generally do not need to file Schedule B, reporting this income directly on Form 1040.
Understanding Parts of Schedule B
Schedule B consists of three parts:
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Part I – Interest Income: List all sources of taxable interest, including savings, checking accounts, CDs, bonds, and Treasury securities. Use Forms 1099-INT to report these amounts.
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Part II – Ordinary Dividends: Report ordinary dividends received from stocks, mutual funds, and ETFs. These amounts come from Forms 1099-DIV. Note that qualified dividends, which receive special tax treatment, are reported directly on Form 1040 line 3a but the ordinary dividend portion appears on Schedule B.
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Part III – Foreign Accounts and Trusts: Answer questions about ownership or involvement with foreign financial accounts or trusts. Affirmative answers may require filing additional forms such as FinCEN Form 114 (FBAR) or IRS Form 3520.
Key Differences Between Interest and Dividends
| Feature | Interest Income | Ordinary Dividends |
|---|---|---|
| Source | Lending money to financial institutions or government | Ownership in stock or mutual funds |
| How it’s earned | Paid for use of your funds | Distribution of company earnings |
| Risk Profile | Generally lower, e.g., FDIC-insured accounts | Variable, dependent on company performance |
| Tax Form | 1099-INT | 1099-DIV |
Filing Tips and Common Errors
- Gather 1099 Forms Early: Financial institutions send 1099-INT and 1099-DIV forms by January 31. Use these to fill Schedule B accurately.
- Report All Interest/Dividends: Even small amounts count towards the $1,500 threshold; aggregate all income.
- Exclude Tax-Exempt Interest: Interest from municipal bonds exempt from federal tax should not be included.
- Nominee Reporting: If you received income that belongs to another person, report the full amount then issue a nominee statement.
- Foreign Accounts: Fully disclose foreign account ownership to avoid severe penalties.
Additional Resources
Learn more about related topics such as Interest Income, Dividend, and Foreign Financial Accounts Reporting.
For definitive guidance, refer to the official IRS instructions for Schedule B:
IRS Schedule B (Form 1040) Information.
Filing Schedule B correctly ensures you comply with IRS rules, helps avoid penalties, and accurately captures income from investments and foreign sources, integral parts of many taxpayers’ overall financial picture.
