Series 50: Original Issue Discount (OID) Bonds

Original Issue Discount (OID) Bonds

An original issue discount (OID) bond is one that is sold at a discount of face value. The discounted price of the bond substitutes for periodic interest payments, since the full principal will be delivered at maturity. The difference between the face value of the bond and the issue price is the original issue discount. If the discount equals or exceeds a certain minimum amount, it is reported as income over the life of the bond. If the OID is smaller than this minimum amount, the bond is treated, for tax purposes, as if it had been issued at par, with no interest earn