When is interest on a CD reported to the IRS?

The interest is reported in the year it is paid. 

Yes. You would report the interest to the IRS when it is earned, and reported to you.

According to the IRS, if the interest earned during the tax year exceeds $10, you must report it on your tax return and pay taxes on it. 1 This reduces your return on the investment, so it's important to consider how CD interest is taxed in order to decide if placing your money in a CD is worth it.

Click here for detailed information on Form 1099-INT.
 

It might depend on the CD.

...some used to only report interest at maturity.

...others may report what accrued during the year.

I suspect that most now report what has been accrued every calendar year.

You could always ask the CD provider

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So is there a difference between the time the interest is earned and when it is paid?

Maybe the question is:  When you have a CD that matures in 12 months, is interest actually earned prior to the end of the 12 month period?  Maybe interest is neither earned nor paid until the CD matures.  Then on the date of maturity, interest is earned and paid and in addition, the CD could be rolled over for a new 12 month period (?)

Thank you helping me understand this!

There is a difference between interest being accrued or earned and when it is paid to the holder of the CD. When it’s paid, it’s reported. 

You probably have to ask your provider what they do.

My CDs at Ally always report accrued interest at year end on a 1099-INT for that year, no matter how long the CD is for.  So if a 1 yr CD is purchased 3mos before year end, those 3mos of interest are reported for that year....and then the next 9mos will be included for the next year's 1099-INT.

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But like I said...I know some CDs only reported at maturity.

Great!  I'll ask the bank what their policy is for their CDs.

I would have thought that the annual 1099-INT would cover interest accrued - whether paid or not - during the year with no consideration given to maturity date.  I think(??) that once the interest is accrued, it can be withdrawn with no penalty, so available funds would seem to have been earned.  But like you folks are saying, there is no strict policy to follow.

Thank you so much folks for your time to help me with this!

Hi. I have several CDs in a foreign institution in Spain. They all started in January 2024 and they all spanned into 2025 (January 2025 and July 2025). Most of the CDs had a maturity of 12 months, but a couple of them have a maturity of 18 months. They all only pay the interests at their maturity. I have checked with the bank and said I will not receive the equivalent of a 1099-INT until next year because in the eyes of the Spanish legislation that income belongs to the 2025 fiscal year.

I have been asking some people and they are all giving me different answers. I have read some parts of publication 550 and I am still confused.

When do I need to report that money here in the US? Is it the same rule here in the US and report all income in 2026? Is there a difference if the CD is 12 months or 18 months?

Thank you in advance for your help.

it doesn't matter if it is 12 Mo or 18 Mos.  The CD's will mature and are payable in 2025.  You will wait until next year to report the interest paid to you.

Thank you DaveF 1006 for your reply.

See, my confusion is regarding  Pub 550, on page  7 it says:

The problem would be that when you finally did get a 1099 INT, the interest shown would not be the interest you would have to include as income if you had already paid tax on a portion of the interest in a previous year.

Interesting!

Topic no. 403, Interest received | Internal Revenue Service states: Most interest that you receive or that is credited to an account that you can withdraw from without penalty is taxable income in the year it becomes available to you. 

I read this as interest earned in an account where you could be charged a penalty and lose the income, then it isn't reported until actually earned/ paid rather than accrued.

@Juancar 

@Frank nKansas   

I interpret it to mean that if you earned interest on an account and it is OK to take advantage of that earned interest without paying a penalty for early withdrawal -- even if you didn't withdraw the earned interest -- then you need to declare it as income for the year in which it was earned.

Perhaps the financial institution in which you earned the interest would issue a 1099-INT if you withdrew interest from the account.  Therefore you would be complying with the regulation and you would be able to properly declare the interest withdrawn in the current tax year since you'd have the 1099-INT.

But if you did not withdraw the earned interest I don't believe the financial institution would issue a 1099-INT (?). Therefore you would not have a 1099-INT to cover the interest since it wasn't withdrawn.  You'd have to create some sort of substitute 1099-INT.............  Which would be awkward.

The regulation is not worded well enough to be adhered to.

The bank interest is a bit tough since you have to know the rules for that investment and most of them love to charge fees - which takes you back to when paid. Bonds are similar. They can be reported each year as accrued or wait until mature and report it all at once. You get the 1099-INT at the end. See another post of mine for bond information.

@Frank nKansas 

Thank you for your responses.

So, the part in pub 550 -- pg 20 -- that says If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. is not applicable to my case? 

Here is another link someone else included in a different threat. 

https://www.goldinglawyers.com/how-does-the-irs-tax-foreign-certificate-of-deposit-interest/#:~:text=U.S.%20Tax%20on%20Accrued%20Overseas,a%20foreign%20Certificate%20of%20Distribution%20(CD

@AmyC

If I decide to to pay interest to the IRS for the 11 months that the CD was open in 2024 and then in 2025 for the 7 remaining months, will that cause and issue with IRS ?? I simply would like to do the right thing and feel secure that I wont be penalized or audited.

Again, all interests in my CDs are not paid until maturity (whether they were 12 months or 18 months).

No. That should not cause any issues with the IRS.  You are simply reporting interest as it accrues and not when it is paid, which is required for a overseas CD according to this link. You should not be audited.

This question doesn't necessary refer to the foreign account scenario...

If tax is paid for the year in which it was accrued, but not paid, would it be correct to assume there would not have been a 1099-INT issued?  Therefore how do you reference that accrued interest in your return?  

And if a 1099-INT was not issued for a year in which you declared the accrued interest, how do you explain the difference between the full amount of interest actually paid as shown on the 'final' 1099-INT issued at the time of maturity vs. the smaller amount accrued and paid in the tax year?  

If interest is reported as income on your tax return each year as it accrues, then you will reduce the amount on a 1099-INT that is received in the year of redemption or maturity, by the amount already claimed in prior years.

@Frank nKansas  

If the financial institution does not issue a 1099-INT until the CD reaches full maturity, and you declare interest accrued annually during the life of the CD, you would have no 1099-INT to reference when you file.  And the amount shown on the 1099-INT issued at maturity would not match the amount you declared in the final year, 

What form do you use or how do you document the discrepancy?

If you receive a 1099-INT that includes income already reported in a previous tax year, enter the 1099-INT as is. When you get to the follow-up screen, you can adjust the interest entered and enter an explanation.

This can be done in the section where you entered the interest. When you get to the follow up question about uncommon situations, select that you need to adjust the interest (see screenshot below) 

Another screen appears where you can choose a reason for the adjustment (see screenshot below):

@Frank nKansas 

Thanks!  I have never had to do that.  I have always waited, incorrectly, until the 1099-INT arrives.

Good to know!

thanks again!

I wouldn't overcomplicate CDs - tax is paid in the year the interest is paid (which in the case of bank CDs is often paid and compounded to the CD account) and reported on 1099-INT.  You should not need/want to pay tax on the accrued interest without a 1099, and doing so effectively reduces your yield which assumes compounding/reinvestment of interest payments until maturity.

The references to Pub 550 "If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID."

.... this section is referring to OID - Original Issue Discount.  In the CD space this would apply to brokered CDs which are issued and traded on secondary market like bonds, if they happen to be issued at discount.  Bank CDs don't have this feature.  This has nothing to do with the interest paid due to the coupon on the CD.

actually I may not be correct that the pub550 reference only applies to discount, it's in the OID section but seems to refer more generally to interest on these instruments but lumping the topic under OID.  Either way I think you should receive a 1099 for it.  Ally for example on their multi year Bank CDs will pay interest annually on 12/31 regardless of anniversary of the CD, and generate a 1099-INT.