Building 1099 interest payout systems

- Python
- Fintech
01 Jan 2023 |
02 Mins read

At Mercury, we built systems to calculate and distribute 1099 interest payouts for thousands of business customers. Accurate tax reporting is critical-mistakes can result in penalties and customer complaints.

The Requirements

1099-INT forms require:

Accurate interest calculations
Proper tax year reporting
Customer information (SSN/EIN)
Compliance with IRS regulations
Timely filing (by January 31)

Architecture

We built:

Calculation engine: Python service to calculate interest
Data pipeline: Extract, transform, load (ETL) for tax data
Form generation: Create 1099-INT PDFs
Filing system: Submit to IRS and states
Customer portal: Allow customers to download forms

Interest Calculation

from decimal import Decimal
from datetime import datetime, timedelta

def calculate_interest(
    principal: Decimal,
    annual_rate: Decimal,
    start_date: datetime,
    end_date: datetime
) -> Decimal:
    """
    Calculate interest using daily compounding.
    """
    days = (end_date - start_date).days
    daily_rate = annual_rate / Decimal('365')
    
    # Simple interest calculation
    interest = principal * daily_rate * Decimal(str(days))
    
    return interest.quantize(Decimal('0.01'))

def calculate_annual_interest(
    account_id: str,
    year: int
) -> Decimal:
    """
    Calculate total interest for a tax year.
    """
    transactions = get_interest_transactions(account_id, year)
    
    total_interest = Decimal('0')
    for transaction in transactions:
        if transaction.type == 'interest_payment':
            total_interest += transaction.amount
    
    return total_interest

Data Pipeline

import pandas as pd

def prepare_1099_data(year: int) -> pd.DataFrame:
    """
    Prepare data for 1099-INT forms.
    """
    # Fetch all accounts with interest
    accounts = get_accounts_with_interest(year)
    
    data = []
    for account in accounts:
        interest = calculate_annual_interest(account.id, year)
        
        if interest > Decimal('10'):  # IRS threshold
            data.append({
                'account_id': account.id,
                'customer_name': account.customer_name,
                'tax_id': account.tax_id,  # SSN or EIN
                'interest_amount': float(interest),
                'year': year,
            })
    
    return pd.DataFrame(data)

Form Generation

from reportlab.lib.pagesizes import letter
from reportlab.pdfgen import canvas

def generate_1099_form(customer_data: dict) -> bytes:
    """
    Generate 1099-INT PDF form.
    """
    buffer = io.BytesIO()
    c = canvas.Canvas(buffer, pagesize=letter)
    
    # Form fields
    c.drawString(100, 700, f"PAYER'S name: {customer_data['payer_name']}")
    c.drawString(100, 680, f"RECIPIENT'S name: {customer_data['customer_name']}")
    c.drawString(100, 660, f"Tax ID: {customer_data['tax_id']}")
    c.drawString(100, 640, f"Interest income: ${customer_data['interest_amount']:.2f}")
    
    c.save()
    buffer.seek(0)
    return buffer.read()

Compliance

Verify tax IDs (SSN/EIN format)
Handle backup withholding
Report to IRS and states
Maintain records for 7 years
Handle corrections and amendments

Testing

def test_interest_calculation():
    principal = Decimal('10000')
    rate = Decimal('0.05')  # 5%
    start = datetime(2023, 1, 1)
    end = datetime(2023, 12, 31)
    
    interest = calculate_interest(principal, rate, start, end)
    expected = Decimal('500.00')
    
    assert abs(interest - expected) < Decimal('0.01')