The 1099-INT instructions state, payers of interest of $10 or more are required to furnish you and the IRS with this tax information. The IRS is notified of all interest paid by financial institutions on magnetic media, but financial institutions only report interest of $10 or more. I have seen some sites state, “If you do not include your interest income on your tax return the IRS will know when their computer system matches your tax return to the tax information provided by payers.” Which I believe is incorrect because if payers/financial institutions only report interest of $10 or more then how will the IRS or their computer system match your tax return to a 1099-INT reporting less than $10 when such a 1099-INT was not provided to the IRS?
I have yet found an IRS document addressing the individual tax filer if they are still to report interest less than $10. Are individuals to report interest less than $10 even though payer does not provide a 1099-INT to the IRS?
The $10 threshold is supposed to be for the sake of administrative ease. The tax associated with interest of $10 or less is so insignificant that reporting this interest is not required by the financial institution.
That said, some financial institutions find it administratively more efficient to run all of the reports, regardless of the amount. The bank that holds my children’s passbook savings accounts (yes, they still exist – and the kids love the passbook!) issues a 1099-INT for each of the accounts every year despite the fact that the interest is only a few dollars.
If I receive a 1099-INT, I always report it, regardless of the amount. I can’t imagine why you wouldn’t – it’s easy enough to include it and that way, all of the numbers match up on the return with what the IRS has on file.
If you are required to file a tax return, you should report all income from all sources whether you receive a corresponding form or not. So, regardless of whether you receive the form 1099-INT, you should report the interest. Again, the tax consequence of doing so is quite minimal.
All of that said, I have never heard of a client who was audited for not reporting interest less than $10 which was reported on a form 1099-INT. This doesn’t mean that it hasn’t happened, just that I haven’t heard of it. I personally wouldn’t recommend it – you are responsible for reporting the interest irrespective of the amount and I’m not sure why you would risk having your return potentially flagged over less than $10.