1. For Consumer Math Class East Jackson High School
Tax Unit: Module 3
For Consumer Math Class
East Jackson High School

2. Module 3: Interest Income
Introduction
Interest can be taxable or tax-exempt.
All interest must be reported on the tax return.

3. Interest Interest is the charge for the use of borrowed money.
Your money earns interest when it is
Deposited in accounts in banks, savings and loans, and credit unions.
Used to buy certificates of deposit or bonds.
Lent to another person or business.
Interest is considered unearned income because money, not a person, is working to earn the income.

4. Taxable Interest Taxable interest income is earned from
savings and checking accounts
U.S. Savings Bonds
savings certificates (certificates of deposit or CDs)
money market certificates

5. Tax-exempt Interest
Tax-exempt interest income is earned from bonds issued by entities in states, cities, counties, or the District of Columbia, such as:
port authorities
toll-road commissions
community redevelopment agencies
qualified volunteer fire departments

6. Quick Check!
____1. Interest income is earned on all of the following except
a. U.S. Saving Bonds
b. rental properties
c. deposits in savings accounts
d. deposits in credit union accounts
____2. Which statement is not true?
a. Interest is the charge for the use of money.
b. Interest income is considered unearned income.
c. Interest income may be taxable or tax-exempt.
d. The U.S. government does not pay interest.
____3. Alexa earned $145 from money in her savings account.
a. Taxable
b. Tax-exempt
____4. LaKeisha earned $135 on bonds issued by the Ohio Water Authority.

7. 1099-INT Interest income is usually reported on Form 1099-INT
It is important to report each Form 1099-INT separately.
Taxable interest income is reported on the tax return, even if the taxpayer does not receive Form 1099-INT.

9. Quick Check!
How much taxable interest income did Maurice earn? ___________
___2. Did Maurice earn any interest on U.S. Savings Bonds?
a. Yes
b. No
___3. Did Maurice have any federal income tax withheld on the interest he earned?
$78.21

10. Review! _____1. Interest income is earned on money in savings
accounts.
a. True
b. False
______2. All interest income is taxable.
______3. Tax-exempt interest is not reported on the
individual income tax return.
______4. Form 1099-INT is used to report interest
income.

11. Simulation for Module 3 Using Your W-2 and Form 1099-INT to File Your 1040EZ
Your name is Tasha Miller.
You are an administrator at the Job Center.
You are single with no children.
You are a U.S. Citizen.
Your favorite aunt dies and leaves $2000 to you in her will. You deposit the money in a savings account at your bank.
Inheritance is tax-free, but interest earned on it is subject to tax.

12. Congratulations! Your have just successfully completed Module 3!
All information came from the Internal Revenue Service Understanding Taxes Program