It usually occurs when companies issue bonds at a price less than their redemption value at maturity. The difference between these two amounts is the OID. For bonds issued after 1984, the OID is treated as interest. It's taxable as it accrues over the term of the bond.

What is a 1099-OID form used for?

If your bonds or certificates of deposit (CDs) have reached maturity, you'll need to file tax Form 1099-OID. Form 1099-OID is used to report a special type of interest from certain bonds that were issued at a price less than the value you can redeem them for once the bond matures.

What are the OID rules?

An original issue discount (OID) is the discount in price from a bond's face value at the time a bond or other debt instrument is first issued. ... The OID is the amount of discount or the difference between the original face value and the price paid for the bond.