Calculating taxable interest income from my Consolidated Form 1099 and 1099-INT Supplemental Data documents

What interest from bonds is reported on my Consolidated Form 1099?

Each tax year, you will receive a Consolidated Form 1099 from Wealthfront that includes 1099-INT that details interest income from your Automated Bond Ladder. The interest income from the treasuries in your ladder will be shown as Total US Government Interest.

Interest income will include the total value of both coupons received from your bonds as well as interest received from the discount, if any, on the price paid for the bonds relative to the face value received at maturity. Importantly, interest income will not include interest earned on your bonds that was still pending at the end of the tax year and will be received in future tax years through coupons and face value at maturity.

What portion of the interest income on my 1099-INT is taxable?

In general, only the portion of interest that accrued while you held the bond is taxable. Any interest that may have been accrued by the previous owner(s) of the bond can be deducted from your interest income if it was included in your bond’s purchase price. You can find the amount of interest to deduct as the Accrued Interest Paid Deduction in your 1099-INT Supplemental Data form.

Example:

• You purchase a $1,000 treasury bond on November 1
• The bond paid a $20 coupon every 6 months on June 30 and December 31
• The seller held the bond since the last payment, so they are entitled to four months of accrued interest (July, August, September, October)
• The accrued interest you paid to the seller when purchasing the bond is calculated as follows: $20 * (4/6) = $13.33
• On December 31, you receive the full $20 interest payment
• Tax treatment:
  • Your 1099-INT will include the full $20 as taxable interest income
  • However, since you already paid $13.33 in accrued interest to the seller, you can deduct $13.33 from your taxable interest income
  • Final taxable interest = $20 - $13.33 = $6.67

How can I find my accrued interest paid that I can deduct from my interest income?

To make determining your accrued interest paid to the seller easy, Wealthfront provides a 1099-INT Supplemental Data form for each tax year. This form can be found alongside your Consolidated Form 1099 in your Documents portal.

This form includes: Accrued Interest Paid Available, split between:

• Accrued Interest Paid Deduction: The amount of accrued interest paid that can be deducted from this tax year interest income
• Accrued Interest Paid Carried Forward: The amount of accrued interest paid that can’t be deducted from this tax year interest income and is still remaining for future tax years