1099-OID Form: Boxes, Reporting, and Cost Basis Effects

Form 1099-OID reports interest the IRS treats you as having earned on a bond or other debt instrument that was issued below its face value, even if no cash reached your account during the year. The gap between the discounted issue price and the face value is called original issue discount, and the tax rules spread that built-in gain across the years you hold the instrument rather than taxing it all at maturity. Your broker or the issuer sends you the form whenever the OID credited to you reaches $10 or more for the year.¹

What Original Issue Discount Actually Is

OID is the difference between a debt instrument’s face value and the lower price it was first sold for.² A $1,000 bond issued at $950 carries $50 of OID. That $50 is treated as interest you earn gradually over the life of the bond, and a slice of it lands in your taxable income each year whether or not the issuer sends you a check.³

The yearly slice isn’t a flat split. OID accrues on a constant-yield basis, so the amount recognized is smaller in early years and grows over time. That is why the figure on your form can shift from one year to the next on the same bond.

Reading the Boxes on Your 1099-OID

Not every box will carry a number for every instrument, but each has a distinct job. The ones below are the boxes a typical holder needs to understand.

Box 1: Original Issue Discount

The main figure. This is the taxable OID that accrued while you held the instrument during the year, and it goes on your return as interest income even if no cash was paid.⁴

Box 2: Other Periodic Interest

Some OID instruments also pay stated coupon interest. Box 2 shows any interest the issuer paid you in cash during the year, separate from the imputed amount in Box 1.⁴

Box 3: Early Withdrawal Penalty

If you cashed in a CD or similar time deposit before maturity and forfeited interest or principal, the forfeited amount appears here.⁵ You can deduct this as an adjustment to gross income on Schedule 1 of Form 1040, so the deduction is available whether or not you itemize.

Box 4: Federal Income Tax Withheld

Any backup withholding taken from your OID income, which typically happens when a correct taxpayer identification number wasn’t on file with the payer. Claim the amount as a tax payment on your return.⁶

Box 6: Acquisition Premium

If you bought an OID bond on the secondary market for more than its adjusted issue price but still below face value, the extra you paid is an acquisition premium. Box 6 shows it, and it reduces the OID you owe tax on. Some brokers already net it against the Box 1 figure; others leave the adjustment to you.⁶

Box 8: OID on U.S. Treasury Obligations

Discount on Treasury bills, notes, and bonds is reported here rather than in Box 1.⁴ Treasury OID is subject to federal income tax but generally exempt from state and local tax.

Box 10: Bond Premium

Applies when you bought a taxable bond for more than face value. It shows the portion of that premium your broker amortized against the interest you received.⁴ Do not confuse this with acquisition premium in Box 6. Acquisition premium sits between adjusted issue price and face value; bond premium is anything paid above face value.

Box 11: Tax-Exempt OID

OID on a tax-exempt municipal bond issued at a discount. Generally not subject to federal income tax, but still worth tracking because it affects your basis in the bond.⁶

Which Investments Generate OID

Zero-coupon bonds are the classic case. They pay no interest until maturity, so the entire return comes from the discount at issuance and accrues as OID every year. First-time holders are often surprised to owe tax on income they haven’t yet received.

Treasury bills are another common source. T-bills are always sold at a discount and mature within a year, so the discount is short-term OID. Certain corporate and municipal bonds can also carry OID when the offering price sits far enough below face value.

Longer-term CDs qualify too. If a CD’s term exceeds one year and interest isn’t paid out at least annually, the issuer must report the accruing interest on a 1099-OID.⁷

Reporting the Income on Your Return

The OID in Box 1 and any periodic interest in Box 2 go on Schedule B (Interest and Ordinary Dividends) of Form 1040. Schedule B is required if your total taxable interest or ordinary dividends exceed $1,500 for the year.⁸ List each payer on line 1, then carry the total to the taxable interest line on Form 1040.

Adjusting for Acquisition Premium

If Box 6 shows an acquisition premium and your broker did not already reduce Box 1, make the adjustment on Schedule B. Report the full Box 1 amount, then enter a subtraction labeled “OID Adjustment” below it, and carry the net to Form 1040.⁸ If the broker already reported a net figure, don’t reduce it again.

Nominee Reporting

Sometimes a 1099-OID arrives in your name even though some of the OID belongs to a co-owner. Report the full amount on line 1 of Schedule B, then subtract the other person’s share with a “Nominee Distribution” notation. You must also issue that person a 1099-OID and file the corresponding Forms 1096 and 1099-OID with the IRS.⁹

How OID Raises Your Cost Basis

Reporting OID each year has a payoff at sale. Every dollar of OID you include in income also increases your tax basis in the bond by the same amount.³ When you sell or redeem, you subtract that adjusted basis from the proceeds to compute your gain or loss.

Say you paid $87,000 at issuance and included $1,214 of OID in income over several years. Your adjusted basis is $88,214. Sell for $90,000 and your capital gain is $1,786, not $3,000. Without the basis step-up you’d be taxed twice on the OID you already reported.³

Tax-exempt bonds work the same way. Even though the OID isn’t taxed, you still increase your basis by the amount that would have been includable if the bond were taxable.³ Skipping the adjustment overstates your gain at sale.

The De Minimis Rule

A small discount doesn’t trigger annual OID reporting. OID is treated as de minimis when the discount is less than 0.25% of the face value multiplied by the number of full years to maturity.⁷

A 10-year, $1,000 face-value bond has a de minimis threshold of $25 (0.25% × $1,000 × 10). Issued at $980, the $20 discount falls under the threshold, so no annual accrual is needed. The $20 becomes capital gain when the bond matures or is sold, which can convert what would have been ordinary interest into a lower-taxed gain.

Market Discount Is Not the Same Thing

Investors often confuse market discount with OID because both involve buying a bond below face value. The difference is timing. OID exists from the day the bond is first issued at a discount. Market discount arises later, when you buy an already-issued bond on the secondary market for less than its current adjusted issue price.

The tax treatment splits too. OID has to be included in income each year. Market discount is generally optional year to year: unless you elect annual accrual by notifying your broker in writing, you can defer the income until you sell or redeem the bond.³ If you elect annual accrual, the broker reports market discount in Box 5.

What Happens if You Leave OID Off Your Return

Your broker sends the same 1099-OID data to the IRS, so the agency’s Automated Underreporter system will match its copy against your return. A mismatch typically produces a CP2000 notice proposing additional tax. A CP2000 is a proposal, not a bill; you can agree, partially agree, or dispute it by the deadline. Ignoring it leads to a Statutory Notice of Deficiency.¹⁰

On top of the extra tax, the IRS can add an accuracy-related penalty of 20% of the underpayment when the understatement is substantial. For individuals, substantial means an understatement greater than 10% of the correct tax or $5,000, whichever is larger.¹¹ With a sizable OID position, or several instruments in the same year, that threshold is closer than it looks.

1
Internal Revenue Service. About Form 1099-OID, Original Issue Discount
2
Cornell Law Institute. 26 USC 1273(a)(1) – Definition: Original Issue Discount
3
Internal Revenue Service. Publication 1212 (12/2025), Guide to Original Issue Discount (OID) Instruments
4
Internal Revenue Service. Publication 1212 (12/2025), Guide to Original Issue Discount (OID) Instruments – Section: Form 1099-OID
5
Internal Revenue Service. Form 1099-OID Instructions
6
Internal Revenue Service. Form 1099-OID (Rev. January 2024)
7
Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID (01/2024) – Section: Specific Instructions for Form 1099-OID
8
Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025) – Section: Interest and Ordinary Dividends
9
Internal Revenue Service. 2025 Instructions for Schedule B (Form 1040)
10
Internal Revenue Service. Topic No. 652, Notice of Underreported Income – CP2000
11
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments