OID Calculator 2026 β Original Issue Discount on Zero-Coupon Bonds
Calculate annual phantom income from OID using the constant-yield-to-maturity method. See your tax bill each year on zero-coupon bonds and STRIPS with full amortization schedule.
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Amount paid for the bond (must be below face value)
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First 5 Years β OID Accrual Summary
| Year | Beginning Basis | OID Accrued | Ending Basis | Tax Owed |
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How OID Is Calculated
The constant-yield method accretes your basis up to face value over the bond's life. Each year's OID = beginning basis Γ YTM.
Total OID = Face Value β Purchase Price
YTM = (Face / Purchase)^(1/Years) β 1
Year 1 OID = Purchase Price Γ YTM
Year N OID = Ending Basis (Year Nβ1) Γ YTM
Tax owed = OID accrued Γ marginal rate
YTM = (Face / Purchase)^(1/Years) β 1
Year 1 OID = Purchase Price Γ YTM
Year N OID = Ending Basis (Year Nβ1) Γ YTM
Tax owed = OID accrued Γ marginal rate
Example: $100,000 face, $55,839 purchase, 10 years
YTM = (100,000/55,839)^(1/10) β 1 = 6.0%
Year 1 OID: $55,839 Γ 6% = $3,350 phantom income
Year 10 OID: ~$5,943 phantom income (basis has grown)
At 32% rate: $1,072 tax in Year 1, growing each year
YTM = (100,000/55,839)^(1/10) β 1 = 6.0%
Year 1 OID: $55,839 Γ 6% = $3,350 phantom income
Year 10 OID: ~$5,943 phantom income (basis has grown)
At 32% rate: $1,072 tax in Year 1, growing each year
Extended
Full OID Amortization Schedule + Constant-Yield vs Straight-Line Chart
Year-by-year basis table, cumulative OID chart, and method comparison toggle
Full year-by-year amortization schedule with OID accrual curve. Toggle between constant-yield and straight-line methods.
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Method:
OID Accrual Curve
Constant-Yield OID Straight-Line OID
Full Amortization Schedule
| Year | Beg. Basis | OID Accrued (CY) | OID Accrued (SL) | End Basis (CY) | Tax Owed (CY) |
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Frequently Asked Questions
What is Original Issue Discount (OID)?
OID is the difference between a bond's face value (what you receive at maturity) and its purchase price when issued at a discount. For zero-coupon bonds and STRIPS, you receive no cash interest payments, but you must report phantom income each year equal to the OID accruing on your bond. This income is taxable even though you receive no cash.
How is annual OID calculated using the constant-yield method?
The IRS requires the constant-yield-to-maturity method. First, calculate YTM = (Face / Price)^(1/years) β 1. Then for each year: OID accrual = beginning adjusted basis Γ YTM. Your basis increases by the OID each year, approaching face value at maturity. This means OID accrual grows each year as your basis rises.
Do I have to pay tax on OID even if I don't receive any cash?
Yes. OID on taxable bonds (including US Treasury STRIPS) must be reported as ordinary income each year on Form 1099-OID, even though you receive no cash until maturity. This "phantom income" is a key disadvantage of holding zero-coupon bonds in taxable accounts. Tax-deferred accounts (IRAs, 401ks) are commonly used to hold zero-coupon bonds to avoid this annual phantom tax.
How is OID different from bond premium amortization?
OID arises when you buy a bond below par β you add OID to income each year. Bond premium amortization (Section 171) arises when you buy a bond above par β you reduce your taxable interest income by the premium amortized each year. They are mirror images: OID creates phantom income on discount bonds; premium amortization reduces income on premium bonds.
Are municipal bond OID and tax-exempt OID treated differently?
OID on tax-exempt municipal bonds is generally tax-free at the federal level (though you still adjust your basis). OID on taxable bonds β including US Treasury STRIPS, corporate zeros, and taxable agency bonds β is ordinary income each year. State tax treatment varies. Always check if the issuing bond is taxable or tax-exempt before projecting OID tax liability.