OID Certificates

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The Internal Revenue Service (IRS) requires that you report the accrued interest amount for all Original Issue Discount (OID) certificates meeting all of the following criteria:

  • The accrued interest amount is equal to or greater than $10 or the member experienced backup withholding
  • regardless of the amount withheld.
  • The certificate is not an IRA certificate.
  • The certificate term is greater than one year.
  • Interest is paid at maturity only.

The OID Certificate check box on the Certificate Profiles - Account Information tab for the certificate type must be selected if the certificate type is an OID certificate type.

The 1099OID Notices Report 107 reports the accrued interest for the OID certificates to the IRS on Form 1099-OID. Refer to the 107 Report documentation for more information.

Tracking Accrued Interest

Two fields on the Certificates - Interest tab track the accrued interest amount on the individual OID certificate. The Prior Year Accumulated field displays the interest amount accrued from the purchase date of the certificate through the last date of the prior year. The Prior Year OID field displays the accrued interest amount reported to the IRS for the prior year.

The Int/Div/LtChgs/Fees tab tracks the accrued interest amount for all the member's OID certificates. The OID Interest Amount field on the Int/Div/LtChgs/Fees tab displays the total accrued interest amount for the prior year for all of the member's OID certificates. This amount is the sum of the amounts specified on each Certificates - Interest tab in the Prior Year OID field.

Portico uses the following formula to calculate the accrued interest amount on an OID certificate for the current year:

Daily Interest Rate X Number of days from the date in the Calculated To Date field on the Certificates – Interest tab through 12/31 of the current year X CD Current Balance

The date in the Calculated To Date field can be the purchase date of the certificate, the date of a rate change, add-on, or partial surrender, the maturity date, or the first day of the current year.

Rate Changes, Add-ons and Partial Surrenders

If rate changes, add-ons, or partial surrenders occur, Portico calculates the accrued interest from the date in the Calculated To Date field to the date of the activity, adds this amount to the Unpaid Interest field, and changes the Calculated To Date field to the date of the activity.

During the year-end processing cycle, Portico uses the following formula to calculate the remaining accrued interest based on the new certificate balance or interest rate:

Daily Interest Rate X Number of Days From the Date of the Change Through 12/31 of the Current Year X CD Current Balance

Maturity

When the OID certificate matures, Portico calculates the remaining interest due amount and adds this amount to the Unpaid Interest field. Portico moves the total amount specified in the Unpaid Interest field to the YTD Amount field and changes the Unpaid Interest field to zero. The total interest due amount is disbursed to the member according to the terms of the certificate.

Portico does not report the interest paid amount on this certificate to the IRS on Form 1099-INT because the amount has already been reported as accrued interest on Form 1099-OID.

OID certificates that mature on December 31 create an exception in the way Portico calculates the accrued interest amount when the Dividends Reported field on the Credit Union Profile – Credit Union tab specifies 1. The Dividends Reported field indicates whether Portico reports interest and dividend amounts effective the last day of the accounting period or the first day of the next accounting period. During the year-end processing cycle when the Dividends Reported field specifies 1, Portico would post the dividend or interest amount on January 1 and include the amount in the next year's reporting. If the Dividends Reported field specifies 2, Portico posts the dividend or interest amount during the year-end processing cycle and includes the amount in the current year's reporting.

When the Dividends Reported field specifies 1 and the OID certificate matures on December 31, Portico moves any amount in the YTD Amount field on the Certificates – Interest tab to the Last Statement field and resets the amount in the YTD Amount field to zero. Portico then adds the calculated interest amount to the YTD Amount field and posts the interest amount to the member's account effective January 1. The interest amount remains in the YTD Amount field until the next year-end processing cycle.

Portico calculates the accrued interest amount for the current year by subtracting the amount in the Prior Year Accumulated field from the sum of the amounts in the Last Statement field and YTD Amount field. This amount is reported to the IRS on Form 1099-OID. After the year-end calculation, Portico replaces the amount in the Prior Year Accumulated field with the amount in the YTD Amount field instead of the amount in the Unpaid Interest field.

If the OID certificate matures on December 31 and the Dividends Reported field specifies 2, Portico processes the OID certificate the same as those maturing on any other day in the year.

Renewals

When an OID certificate is renewed, the same certificate number will be used. Portico changes the date in the Calculated To Date field to the renewal date. Portico combines the accrued interest before and after the maturity date of a renewed certificate and reports both amounts on one Form 1099-OID. During the year-end processing cycle, Portico uses the following formula to calculate the accrued interest on the renewed certificate: Daily Interest Rate X Number of days from the renewal date in the Calculated To Date field on the Certificates – Interest tab through 12/31 of the current year X CD Current Balance

If the OID certificate is not renewed, only the accrued interest calculated from the beginning of the current year through the maturity date is reported to the IRS on the Form 1099-OID. This accrued interest amount is calculated by subtracting the amount in the Prior Year Accumulated field from the amount in the YTD Amount field. Portico does not purge the inactive OID certificate until after year end.

Surrenders

Portico automatically calculates a percent withholding amount when you surrender an OID certificate. The Dividend Withholding check box must be checked on the Stmts/Reporting/Notices tab. The withholding amount is based on the default withholding percentage specified on the Credit Union Profile - Credit Union tab, or the override percentage specified on the on the Stmts/Reporting/Notices tab. Portico credits general ledger account 844000 with the withholding amount and debits the certificate general ledger account. The Withholding Maintenance dialog box displays the withholding amount in the YTD Federal W\H field. Portico reports the withholding amount on the Form 1099-OID.

If a partial or early surrender occurs on the OID certificate, Portico reports the penalty amount on the current year's Form 1099-OID as an early withdrawal penalty. The amount assessed the member for the partial or early surrender appears in the Penalty Amount field on the Certificates – Interest tab if certificate penalties were assessed.

Year-End Processing

During the year-end processing cycle, Portico performs several steps to determine the accrued interest amount to include on Form 1099-OID:

  1. Calculates the accrued interest
  2. Adds the calculated accrued interest amount to the Unpaid Interest field on the Certificates – Interest tab.
  3. Subtracts the amount in the Prior Year Accumulated field on the Certificates – Interest tab from the sum of the Unpaid Interest field and YTD Amount field to arrive at the amount to be reported to the IRS. Portico stores this amount in the Prior Year OID field on the Certificates – Interest tab.
  4. Rolls over the amount in the Unpaid Interest field into the Prior Year Accumulated field on the Certificates – Interest tab. The same amount then appears in both fields. Any transactions performed during the year on the certificate will update the Unpaid Interest field. The Prior Year Accumulated field will stay the same until year-end processing.
  5. Reports the amount in the Prior Year OID field on the Certificates – Interest tab on Form 1099-OID

The total accrued interest, the total OID penalty amount, and the total OID withholding amount appear in the YEAR-TO-DATE FINANCIAL SUMMARY section on the last page of the member's statement.

The following examples demonstrate how Portico automatically processes OID certificates during the year-end processing cycle. These examples do not show true interest amounts.

Example A: OID certificate purchased on July 1, 2018, for $10,000

The Certificates – General and Interest tabs contain the following information:

  • Original Purchase Date 07/01/18
  • Purchase Amount $10,000.00
  • Calculated To Date 07/01/18
  • Unpaid Interest $0.00
  • Prior Year Accumulated $0.00
  • Prior Year OID $0.00
  • YTD Amount $0.00

At year-end, Portico performs the following steps to calculate the accrued interest amount to be reported to the IRS. No changes occurred on the certificate through 12/31/18, so the interest-calculated-to date and the original purchase date are the same:

  1. Calculates the accrued interest using the date in the Calculated To Date field (07/01/18) through year-end (12/31/18). The calculated accrued interest equals $100.
  2. Adds the calculated accrued interest amount to the Unpaid Interest field $100 + 0 = $100.
  3. Adds the amounts in the Unpaid Interest and YTD Amount fields $100 + 0 = $100
  4. Subtracts the amount in the Prior Year Accumulated field from the sum of the Unpaid Interest and YTD Amount fields to arrive at the amount to be reported to the IRS $100 - 0 = $100 Replaces the amount in the Prior Year OID field with the newly-calculated amount.
  5. Moves the amount in the Unpaid Interest field to the Prior Year Accumulated field.
  6. Reports the amount in the Prior Year OID field to the IRS on FORM 1099-OID for this certificate.

The following field values appear on the Certificates – General and Interest tabs after the year-end processing cycle:

  • Calculated To Date 01/01/19
  • Unpaid Interest $100.00
  • Prior Year Accumulated $100.00
  • Prior Year OID $100.00
  • YTD Amount $0.00

Example B: The certificate had a rate change.

When a rate change occurs on February 11, 2019, Portico performs the following steps on the OID certificate:

  1. Calculates the accrued interest as follows: Multiplies the old daily interest rate X (number of days from last year end to the date of the rate change) X certificate current balance. The accrued interest is calculated from 01/01/19 to 02/11/19. The calculated accrued interest equals $20.
  2. Adds the calculated accrued interest amount to the Unpaid Interest field $100 + 20 = $120.

The following field values appear on the Certificates – General and Interest tabs after the rate change:

  • Calculated To Date 02/11/19
  • Unpaid Interest $120.00
  • Prior Year Accumulated $100.00
  • Prior Year OID $100.00
  • YTD Amount $0.00

At year-end, Portico performs the following steps to calculate the accrued interest when a rate change has occurred during the year.

  1. Calculates the accrued interest from the rate change date through year-end. Therefore, interest would be calculated from 02/11/19 through 12/31/19. The calculated accrued interest equals $75.
  2. Adds the calculated accrued interest amount to the Unpaid Interest field. $75 + 120 = $195.
  3. Adds the amounts in the Unpaid Interest and YTD Amount fields $195 + 0 = $195.
  4. Subtracts the amount in the Prior Year Accumulated field from the sum of the Unpaid Interest and YTD Amount fields to arrive at the amount to be reported to the IRS: $195 - 100 = $95. Replaces the amount in the Prior Year OID field with the newly calculated amount.
  5. Moves the amount in the Unpaid Interest field to the Prior Year Accumulated field
  6. Reports the amount in the Prior Year OID field to the IRS on FORM 1099-OID for this certificate.

The following field values appear on the Certificates – General and Interest tabs after the year-end processing cycle:

  • Calculated To Date 01/01/20
  • Unpaid Interest $195.00
  • Prior Year Accumulated $195.00
  • Prior Year OID $95.00
  • YTD Amount $0.00

Example C: The certificate reached maturity and automatically renewed.

In example C, Portico performs the following steps when the OID certificate reaches maturity on July 1, 2020 and is automatically renewed:

  1. Calculates the accrued interest from the last date of calculation to the maturity or surrender date, which is 01/01/20 to 07/01/20. The calculated accrued interest equals $55.
  2. Adds the calculated accrued interest amount to the Unpaid Interest field $55 + 195 = $250.
  3. Adds this amount to the YTD Interest field.
  4. Resets the Unpaid Interest field to zero (0).
  5. Changes the date in the Calculated To Date field to the renewal date.
  6. Disburses the total interest due amount to the member according to the terms of the certificate.

The following field values appear on the Certificates – General and Interest tabs after the certificate matured and was renewed:

  • Calculated To Date 07/01/20
  • Unpaid Interest $ 0.00
  • Prior Year Accumulated $195.00
  • Prior Year OID $95.00
  • YTD Amount $250.00

At year-end, Portico performs the following steps when the OID certificate matured and then renewed during the year:

  1. Calculates the accrued interest from the renewal date through year-end. Therefore, interest would be calculated from 07/01/20 through 12/31/20. The calculated accrued interest equals $50.
  2. Adds this amount to the Unpaid Interest field $50 + 0 = $50.
  3. Adds the amounts in the Unpaid Interest and YTD Amount fields $250 + 50 = $300.
  4. Subtracts the amount in the Prior Year Accumulated field from the sum of the Unpaid Interest and YTD Amount fields to arrive at the amount to be reported to the IRS: $300 - 195 = $105. Replaces the amount in the Prior Year OID field with the newly calculated amount.
  5. Moves the amount in the Unpaid Interest field to the Prior Year Accumulated field.
  6. Reports the amount in the Prior Year OID field to the IRS on FORM 1099-OID for this certificate.
  7. Resets the YTD Amount field to zero (0).

The field values appear on the Certificates – General and Interest tabs after the year-end processing cycle:

  • Calculated To Date 01/01/21
  • Unpaid Interest $50.00
  • Prior Year Accumulated $50.00
  • Prior Year OID $105.00
  • YTD Amount $0.00