1099-OID vs. 1099-INT: Which Form to Use for Convertible Note Interest Reporting

Many startups issue convertible promissory notes and struggle with which tax form to use to report interest income: Form 1099-OID or Form 1099-INT. Getting it wrong can create compliance issues for both the issuer and the investor.

What Is the Difference Between OID and Interest Income?

Original Issue Discount (OID) arises when a debt instrument is issued at a discount from its stated redemption price at maturity. It accrues annually under the constant yield method, regardless of whether cash is paid. Interest income, by contrast, is reported when it is actually paid or credited to the investor.

A convertible note that pays interest only at maturity or conversion — not at least annually — does not qualify as stated interest and is treated as OID.

 

	OID (Original Issue Discount)	Interest Income
When it applies	When a debt instrument is issued at a discount from its stated redemption price at maturity.	When interest is actually paid or credited to the investor’s account during the tax year.
How it accrues	Accrues annually using the constant yield (economic accrual) method, regardless of payment.	Focuses on the exact amount of stated interest paid or credited during the year.
Calculation	Computed as the excess of the stated redemption price at maturity over the issue price.	Simpler calculation — the amount of qualified stated interest (QSI) paid or credited.
Key Citations	IRC § 1272(a)(1); IRC § 1273(a); Treas. Reg. § 1.1272-1	Treas. Reg. § 1.61-7(c); Treas. Reg. § 1.446-2; Treas. Reg. § 1.1273-1(c)

 

Which Tax Form to File: 1099-OID or 1099-INT for Convertible Notes

1099-OID covers the annual accrual of discount on a debt instrument, while 1099-INT covers interest actually paid. For most convertible notes, 1099-OID is the correct form. An exception applies for short-term notes (one year or less), which are reported on 1099-INT.

	Form 1099-OID	Form 1099-INT
Reports	OID accrued annually over the life of the debt instrument.	Interest income paid or credited during the year.
Issuer obligation	Calculate and report OID each year the instrument is outstanding.	Calculate and report the actual interest income paid each year.
Timing	Reported annually regardless of whether cash is paid to the investor.	Reported when the interest is received or credited.

 

Two Exceptions That Change Which Form You File

Short-Term Notes

Notes with a fixed maturity of one year or less are generally exempt from OID rules. Interest is reported on Form 1099-INT when paid.

IRC § 1272(a)(2)(C)

De Minimis OID

If computed OID is less than 1/4 of 1% of the stated redemption price at maturity multiplied by the number of full years to maturity, it is treated as zero and not reported.

IRC § 1273(a)(3); Treas. Reg. § 1.1273-1(d)

 

Practical Compliance Notes

Topic	Guidance
Reporting Thresholds	File at $10 or more of interest on corporate debt, including convertible notes. A separate $600 threshold covers certain trade-or-business interest — not typically relevant to convertible notes.
Exempt Recipients	Neither form is required for payments to corporations, IRAs, HSAs, Archer MSAs, tax-exempt organizations, U.S. agencies, brokers, or registered securities dealers, among others.
Combined Reporting Option	For most taxable obligations, the issuer may report both QSI and OID on a single Form 1099-OID: QSI in Box 2, and OID in Box 1.
Short-Term OID on 1099-INT	The IRS directs filers to report OID on obligations with a term of one year or less on Form 1099-INT, Box 1 — even though the income is economically OID.

 

Source: IRS Instructions for Forms 1099-INT and 1099-OID (Rev. January 2024).

How OID Reporting Works for Demand Convertible Notes

A demand convertible note has no fixed maturity, but it is not open-ended for tax purposes. Under Treas. Reg. § 1.1272-1(d), the yield is fixed at the stated interest rate, meaning OID accrues — and must be reported — each year the note remains outstanding.

Download the Full 1099-OID and 1099-INT Analysis

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Contact Us

For questions about 1099-OID and 1099-INT reporting for convertible notes, or how these rules may apply to your situation, contact Ryan Dobens at rdobens@kbfadvisory.com.