Tax Exempt Interest Payments

Beginning with calendar year 2006, the Internal Revenue Code (IRC) stipulated that tax exempt interest paid by state or local government is considered a bond. In compliance with this code, the interest paid on tax exempt bonds must be reported on IRS form 1099-INT. Tax exempt interest should be recorded on a separate line of the invoice, with the correct debt interest account number and the “I8” 1099 code (tax exempt interest) to comply with the IRS requirements.

In order to flag the tax exempt interest for 1099 reporting, the tax amount must be recorded as a separate line on the invoice. The following accounts can be used depending on the interest type when entering the accounting distributions on your invoice line:

535321 Bond Interest Payments
535322 Anticipation Notes Interest Payments
535323 Capital Lease Interest Payments
535324 Other Interest Payments
535325 Other Interest Payments - Non - Operating Used by Proprietary Funds Only

Please review your agency’s current calendar year transactions, and, if applicable, use the NCAS IMW screen to flag the tax exempt interest amounts as follows.

If the tax exempt interest already is represented on a separate invoice line, simply enter the “I8” code in the 1099 code field for that line.
If the tax exempt interest was not on a separate invoice line, you will need to add two lines to the invoice. The first line should be for the amount of the tax, and should be flagged with the 1099 code. The second line should be a negative in the amount of the tax, thereby offsetting the first line amount. The second line should not be flagged with a 1099 code. Changes for previously closed months require the General Ledger Effective Dates (GED) to be reopened. Please call OSC Support Services at (919) 707-0795 to request the reopening of the GED.