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Other Interest

Paying tax on interest from certificates of deposit

If you buy a certificate of deposit or CD with a maturity of more than 1 year, you must include a part of the interest as income each year.

For example, if you have a certificate of deposit that matures in January 2008 and paid $75 in interest income in the year 2007, you must report the $75 as interest income on your tax return.

Early withdrawal from certificates of deposit

If you withdraw money from a CD or other savings account befoer the maturity date, you may forfeit some of the interest paid. This is an early withdrawal penaly and it is reported on the Form 1099- INT, box 2. You report it on line 30 of the tax form 1040, Penalty on Early Withdrawal of Savings.

 

Paying tax on life insurance proceeds

Life insurance proceeds paid to you as a beneficiary of the insured person are not usually taxable unless the benefits are more than the amount payable to you at the time of the insured person's death. The excess is included in gross income. If you receive the proceeds in installments, the part of each installment payment that represents the excesss is reported as interest income.

 

Taxes on other interest income

The interest you receive on Tax refunds (from IRS, state, etc.) is taxable income.

The fair market value for a gift or service you receive for opending an account in a savings institution is interest. Report it the year you receive it.


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