I've heard that statements of interest income are sent to the IRS by brokerage/financial institutions. Do resident states (the state that I live in) also receive copies of your 1099's?

If you have a CD or savings/money market account in a normal bank, do they report your interest income to your resident state and/or the IRS?

Does the amount of interest you made during a calendar year effect any of this?

  • 5
    This shouldn't matter, because you will report all your income everywhere you are liable, right? – Grade 'Eh' Bacon May 10 '18 at 23:23
  • 6
    Your question is very confusing because you begin by talking about buying stocks, but then you switch to talking about interest income. Note that appreciation in stock value is not treated as interest income. You generally only have to pay taxes on stock gains when you sell and make a profit. You may already understand this, but given the confusion in your question I thought it might be worthwhile to clarify. Are you thinking about stock dividends? – Charles E. Grant May 11 '18 at 0:21
  • @charles: no, i did not understand that, which is why i asked, thanks. Tax laws are so bizarre and confusing it's helpful to clarify even if it seems obvious. – Katz_Katz_Katz May 11 '18 at 15:39
  • Ah, you may want to check to see if someone has already asked a question about the tax implications of owning stocks, or ask your own question if there isn't one. Dividends and profit on stock sales are taxed as capitol gains, not as interest. You may receive separate 1099 forms for interest (1099-Int), dividends (1099-div), or from stock sales (1099-B), or your broker may roll them all up into a combined statements). – Charles E. Grant May 11 '18 at 17:48
  • @CharlesE.Grant: almost. Profit on stock sale is capital gain (nit: not capitol) which (for US) is taxed at lower rates if 'long-term' = stock was held more than a year. Dividends are not gains, but dividends from US corporations if you hold for a minimum period (usually 60 days) are 'qualified' and taxed at the same lower rates as long-term cap gain. OTOH interest (and bond OID) does not get these better rates (except that interest on state&local government aka 'municipal' bonds is exempt from Federal tax entirely). – dave_thompson_085 May 13 '18 at 15:19

Some states do indeed require payers to send a copy of 1099 forms to the state tax agencies. It is entirely dependent on the laws of each state.

However, for many people it doesn’t matter, because when you send in your state taxes many states require that you include a copy of your federal return, so your 1099 income would be included on that for your state to see.

  • Even if they don't (or you fail to), the state tax administration can request this information later from IRS. Google '6103(d)'. – dave_thompson_085 May 11 '18 at 12:41
  • I've never heard of sending in a copy of the federal return with state taxes. I'm in Massachusetts, are we different than everybody else? I thought that the IRS just shared their data with the various states more directly. – Peter Cooper Jr. May 11 '18 at 12:48
  • @PeterCooperJr. Many states, but not all, require that you include a copy of your federal return when you send in your state return. Massachusetts apparently does not require this. – Ben Miller May 11 '18 at 12:54
  • yeah, the whole state tax return is also another source of confusion, i don't work in my resident state so it's unclear whether i need to do anything other than just to pay the local taxes. Reciprocal agreements also factor into this: ttlc.intuit.com/questions/… – Katz_Katz_Katz May 11 '18 at 15:45
  • @Katz_Katz_Katz I can't speak for all states, but in every state I know about that has a state income tax, you are required to file state income taxes if you are a resident of the state and owe taxes or have had taxes withheld. If you live in one state and work in another, then if there is a reciprocal agreement, you don't have to file taxes in the state where you work, but you still have to file in the state where you live. – Jay May 11 '18 at 17:23

I'm going to have to file a 1099 for someone that I'm paying money to this year so I was just reading the instructions, and they say that I am supposed to send one copy to the taxpayer, one copy to the IRS, and one copy to the state tax agency. It may be that some states require it and others don't, I haven't investigated that.

I see some of the commenters assume that you're asking this because you want to not report your 1099 income to the state. If this is what you're thinking, I can only say: Don't. Even if the state doesn't get a copy of your 1099, they communicate with the feds. The information is available to them. They'll track you down sooner or later and then you'll be facing penalties and interest and possible criminal prosecution.

If that's not what you were thinking at all, my apologies for impugning your motives. :-)

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