What Is Interest?

Generally, the payor of the income amounts you receive will distinguish between interest and dividends, and will send you the appropriate form reporting the correct dollar amount you received during the year.

Some items that you might consider to be "interest" are treated as dividends by the IRS (for example, income from money market funds) and some things you might think of as "dividends" are treated as interest (for example, dividends from tax-free municipal bond funds).

Other items that are commonly called "dividends" but that are treated as interest and reported in Part I of Schedule B are income from accounts in cooperative banks, credit unions, domestic building and loan associations, domestic savings and loans, federal savings and loans, and mutual savings banks.

Special rules apply to:

• U.S. government obligations
• tax-exempt interest