A 1099-INT from your mortgage company reports interest the servicer paid to you during the year, not the mortgage interest you paid to them. The most common source is interest credited to your escrow account, which about a dozen states require lenders to pay on funds held for property taxes and insurance. Even though that money usually stays inside the escrow account and never lands in your checking account, the IRS treats it as ordinary interest income, and you report it on your tax return.
Why Your Servicer Sent You One
A payer files Form 1099-INT when it pays you $10 or more in interest during the year.1Internal Revenue Service. About Form 1099-INT, Interest Income For a mortgage servicer, that interest almost always comes from one of a few places.
Escrow Account Interest
Most mortgage payments bundle in an escrow amount that the servicer holds to pay your property taxes and homeowners insurance when those bills come due. Roughly a dozen states require lenders to pay interest on those held balances. The amounts are usually small because escrow balances rise and fall through the year and the required rates are low, but once the annual total hits $10 the servicer has to send a 1099-INT.
Overpayment Refunds
If you overpaid your mortgage or your escrow account ran a surplus that generated a refund, the servicer may have added a bit of interest to the refunded amount. The refunded principal itself is not income (it was your money), but the interest piece is taxable and lands on a 1099-INT.
Settlements and Corrective Payments
Interest can also show up as part of a class-action settlement or a corrective payment tied to a servicing error. When a servicer fixes a miscalculation and labels part of the correction as interest, that portion is taxable interest income.
Property Tax Refund Interest
If a local taxing authority refunds overpaid property taxes through your servicer and pays interest on top of the refund, that interest is taxable regardless of whether you itemized in the year you paid the tax.2Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
Reading the Form
Two boxes do most of the work.
Box 1 shows the total taxable interest the servicer paid or credited to you. This is the number you report as income.
Box 4 shows federal income tax the servicer withheld from your interest at the flat 24% backup withholding rate.3Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Backup withholding kicks in when the payer doesn’t have a valid taxpayer identification number for you, when the IRS has notified the payer that your TIN is incorrect, or when the IRS has directed the payer to withhold because of previously underreported interest or dividends.4Internal Revenue Service. Topic No. 307, Backup Withholding To stop it going forward, give the servicer your correct name and TIN, usually by submitting a Form W-9. Anything already withheld isn’t lost. You claim it as a federal tax payment on your return, just like withholding from a paycheck.
One thing to know about that $10 threshold: it’s a reporting rule for the servicer, not a tax-free allowance for you. If your escrow interest came to $7 and no form arrived, the $7 is still taxable, and the IRS says so plainly.5Internal Revenue Service. Topic No. 403, Interest Received
How to Report the Income on Your Return
The Box 1 amount goes into your gross income. Where you put it depends on how much total interest and ordinary dividend income you received from all sources for the year.
- If your total interest and ordinary dividends came to $1,500 or less, put the amount directly on Form 1040, line 2b. No extra form.
- If the total was more than $1,500, complete Schedule B, list each payer and amount in Part I, and carry the total to Form 1040.6Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends
Use the exact dollar amount printed on the form. The IRS already has a copy, and a mismatch between your return and the servicer’s filing is one of the fastest ways to draw an automated notice.7Internal Revenue Service. 1099-INT Interest Income
If the Form Is Wrong or Never Arrived
Servicers must furnish Form 1099-INT to recipients by January 31.8Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID If the amount looks wrong, contact the servicer and ask for a corrected form. When the corrected version arrives it will be marked “Corrected,” and that’s the one you use. If mid-February passes with no form at all, call the servicer. If the end of February passes and you still have nothing, call the IRS at 800-829-1040 with the servicer’s name, address, and phone number ready, and the IRS will contact the servicer for you.9Internal Revenue Service. What to Do When a W-2 or Form 1099 Is Missing or Incorrect
Don’t hold up your return waiting on the form. Estimate the interest from your escrow statements or account records and file on time. If the actual figure turns out to differ from your estimate once the form arrives, file an amended return on Form 1040-X.
What Happens If You Don’t Report It
The IRS matches every 1099-INT it receives against individual returns automatically. Unreported interest generates a notice proposing the additional tax, plus interest running from the original due date. On top of that, the IRS can impose an accuracy-related penalty of 20% on the portion of the underpayment caused by negligence, which includes failing to report income shown on a 1099-INT.10Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments For a small escrow-interest figure the tax itself is minor, but the follow-up correspondence is not worth the trouble.
A Rule Change Worth Watching
Whether you keep receiving escrow interest at all may depend on who services your loan. In late 2025, the Office of the Comptroller of the Currency proposed a rule concluding that federal law preempts state escrow-interest requirements for national banks. The proposal names laws in twelve states, including New York, California, Connecticut, and Massachusetts.11Federal Register. Preemption Determination: State Interest-on-Escrow Laws If it’s finalized, borrowers in those states whose loans sit with a national bank could stop receiving escrow interest, while borrowers whose loans are serviced by state-chartered banks or nonbank servicers would still be covered by state law.