Do you earn interest from a bank account or other investments? Do you get paid dividends from stocks or other investments you own, or have financial accounts in another country? If so, read on to find out if you need to file Schedule B with your tax return, and how to use this important form.
What is Schedule B?
Schedule B is an IRS form you use to report interest and dividend income on your tax return. Most taxpayers need to file Schedule B when they receive $1,500 or more in interest or dividend income during the year.
You also use Schedule B to notify the IRS when you have foreign bank accounts and other foreign financial interests.
Who needs to file Schedule B?
You need to include Schedule B with Form 1040 as part of your federal tax return if you:
- Received interest income of $1,500 or greater
- Received dividend income of $1,500 or greater
- Cashed in a savings bond for college
- Received interest from an account or investment in a foreign country
- Received dividends from an investment in a foreign country
- Financed a mortgage for another taxpayer
- Collected interest then paid to another taxpayer as the intermediary between two taxpayers. This is called a nominee distribution.
If your interest and dividend income are less than $1,500 for the tax year, you can typically report the income directly on Form 1040, lines 2 and 3, without using Schedule B. However, there are some circ*mstances where you must file Schedule B, regardless of the total amounts.
Where do I find the information for my Schedule B?
You use Schedule B to report a few different types of income, and you receive the necessary information on a few different forms.
Interest income
If you have interest income to report, you will receive one of the following forms with the information you need from the entity that paid the interest or manages your investments:
- Form 1099-INT is the stand-alone form that reports the most common types of interest
- Form 1099-OID is for income derived from a specific form of bond sale called an original issue discount
- Consolidated 1099 statements from financial institutions who report interest, dividends, and more income types on one consolidated document
- Schedule K-1 if you received income from a partnership or S corporation
There are cases some cases where the payer may not have filed Form 1099-INT, such as seller-financed mortgages or foreign financial institutions. You must report the income even if you did not receive a tax form. Jackson Hewitt Tax Pros can help you figure out how.
Dividend income
If you received dividend income, you will receive either Form 1099-DIV or a consolidated 1099 statement from the payer or the financial institution that manages your investments. You need to report all the dividends you received, and separate out your qualified dividends.
- Total dividends appear in Box 1a of Form 1099.
- Qualified dividends appear in Box 1b.
If you’re wondering, the distinction between ordinary and qualified dividends comes down to how long you owned the investment, and whether the company that paid the dividend is a qualified one per IRS rules. Qualified dividends are eligible for special capital gain tax rates.
Foreign bank account reporting
You probably know if you have foreign bank accounts or investments. There is no specific form you will receive because the institutions involved do not have to comply with IRS regulations.
How does Schedule B work?
Schedule B has three different parts. The first is for reporting interest, the second for dividends, and the third for foreign accounts. Here’s how to complete each section. The Tax Pros at Jackson Hewitt are happy to do it for you.
Part I: Interest
- Line 1: List the name of each entity from which you received interest, and the amount you received. Be sure to include any interest from Series EE and I savings bonds and nominee distributions. Enter the payment of the nominee interest you received as income, and your payment to another taxpayer as a subtraction (negative amount).
- Line 2: Add up all the interest from Line 1 and put the total here.
- Line 3: Break out interest you received on U.S. savings bonds (Series EE and I) if the bonds were issued after 1989 and are excluded from your income. This typically applies only when you use have qualified higher education expenses.
- Line 4: Subtract Line 3 from Line 2 to get your total taxable interest income.
Because there are circ*mstances in which you need to file Schedule B, no matter how much interest you received, the amount on Line 4 might be less than $1,500.
If Line 4 is more than $1,500, you must complete Part III.
Part II: Ordinary dividends
- Line 5: List all the payers from whom you received ordinary dividends, and the amount you received. (Your 1099 separates Ordinary and Qualified Dividends. If you received qualified dividend income taxed at capital gains rates, you report it directly on your Form 1040. If you have other capital gain income, it goes on Schedule D.)
- Line 6: Add up all the dividends from Line 5 and put the total here.
If Line 6 is more than $1,500, you must also complete Part III.
Part III: Foreign Accounts and Trusts
- Line 7a: If you have a foreign bank account, or other foreign financial interest such as a brokerage account, you must check "Yes" in answer to the first question. Then, indicate if you must file Financial Crimes Enforcement Network (FinCEN) Form 114, known as FBAR, based on the amount and nature of your holdings.
- Line 7b: If you are required to file Form 114, enter the name of the foreign countries where your accounts are located.
- Line 8: If you received foreign trust distributions or were the grantor or transferor of a foreign trust at any time during the tax year, check "Yes." You may also need to file Form 3520 to report your foreign interest. You will not owe additional taxes on this interest.
If the only interest you receive is from a bank account, and your investments are not more complicated than one or two stocks or funds, Schedule B can be pretty simple. But, if you receive interest or dividends from multiple sources, the details can get confusing quickly. Jackson Hewitt Tax Pros are always here to help you get it right, so you don’t pay more in taxes than you need to.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.
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