Interest and Ordinary Dividends

Who Files Schedule B

Taxpayers whose total taxable interest or ordinary dividends exceed $1,500 for the year. Also required regardless of amount when the taxpayer has a financial interest in a foreign account, signature authority over a foreign account, or received a distribution from or was a grantor or transferor of a foreign trust. Part III of Schedule B is the gateway question to FBAR and Form 8938 reporting.

What Schedule B Reports

Part I lists each payer of taxable interest with amounts, including Series EE/I bond interest, seller-financed mortgage interest, and accrued interest from bond purchases. Part II lists each payer of ordinary dividends, distinguishing qualified dividends (taxed at long-term capital gains rates, reported on Form 1040 line 3a). Part III is the foreign account and foreign trust disclosure, which feeds into FBAR (FinCEN 114) and Form 8938 obligations.

Key Deadlines

• April 15: filed with Form 1040
• Coordinated with FBAR (FinCEN 114) annual deadline of April 15, automatic extension to October 15

Common Mistakes

• Failing to answer Part III foreign account questions accurately. The IRS uses Schedule B answers to identify potential FBAR and Form 8938 non-filers.
• Reporting tax-exempt interest on Schedule B. Tax-exempt interest goes on Form 1040 line 2a, not on Schedule B.
• Treating qualified dividends as ordinary on the 1040. Qualified dividends are reported separately on line 3a and taxed at long-term capital gains rates.
• Skipping Schedule B because total interest and dividends are below $1,500 even when foreign account disclosure is required. The form is mandatory regardless of amount in that case.
• Missing accrued bond interest at purchase: when buying a bond between coupon dates, the buyer pays accrued interest that is not their income.

Best Practices

• Reconcile Form 1099-INT, 1099-DIV, and any year-end statements against Schedule B totals before filing.
• For foreign accounts, answer Part III YES even if uncertain. Underreporting Part III is a major IRS examination trigger; overreporting has no penalty.
• Track qualified vs nonqualified dividend status from broker 1099-DIV box 1b. Holding-period requirements determine qualified status; some 1099-DIVs report incorrectly.
• For seller-financed mortgages received as interest, report the buyer name, address, and SSN as required. Missing this triggers IRS notices.
• If you are a US person with foreign accounts above $10,000 aggregate any day, file FBAR alongside Schedule B every year, even with no taxable interest.

Source: Official Schedule B information at IRS.gov