Key Takeaways
- All checking account interest is taxable income on your federal return, even amounts under $10 that don't trigger a 1099-INT form.
- Your bank sends Form 1099-INT if you earned $10 or more in interest during the calendar year, usually by January 31.
- You report the interest on Schedule 1 (Form 1040) under "Interest" income, not on the main 1040 form itself.
- State and local taxes may also explore to checking account interest, depending on where you live and whether your state has an income tax.
- If your bank reports the wrong amount on the 1099-INT, you can still correct it on your return or contact the bank to file an amended form.
How the IRS knows about your checking account interest
Banks are required to report interest paid to depositors to the IRS on Form 1099-INT. Your bank sends a copy to you and files a copy with the IRS under your Social Security number. The IRS then cross-checks what you report on your return against what the bank reported. If the numbers don't match, you may receive a notice.
The $10 threshold is a reporting requirement, not a tax threshold. If you earned $8 in interest and your bank doesn't send a 1099-INT, you still owe federal tax on that $8. Most people don't report amounts that small because the tax is negligible—$8 in interest at a 22% tax rate is less than $2—but technically you should include it.
Some banks offer interest-bearing checking accounts with rates competitive with savings accounts. If you have multiple accounts at the same bank, the interest is combined on a single 1099-INT. If you have accounts at different banks, each bank sends its own form.
Where to report the interest on your return
You report checking account interest on Schedule 1 (Form 1040), line 8b, labeled "Interest." This is separate from the main Form 1040, which no longer has a line for interest income. If you file electronically, your tax software will walk you through entering the amount. If you file by paper, you attach Schedule 1 to your Form 1040.
The interest goes in the "Interest" section of Schedule 1, not under capital gains or other income. If you have interest from multiple sources—a checking account, savings account, money market account, or CDs—you add them together and report the total on line 8b. You don't need to list each account separately unless you're itemizing deductions or have other reasons to track them.
If the interest is very small and you're not required to file a return for other reasons, you may not need to file at all. The IRS has filing thresholds based on age, filing status, and income. But if you do file, the interest must be included.
What happens if the 1099-INT amount is wrong
If your bank reports the wrong amount on the 1099-INT, you have two options. You can report the correct amount on your return and keep documentation showing the discrepancy. The IRS will see a mismatch with what the bank reported, but if you can explain it, you're protected. You can also contact your bank and ask them to file a corrected 1099-INT (Form 1099-INT with a "Corrected" checkbox marked).
Banks sometimes make errors—they may include interest from an account you closed early in the year, or they may calculate interest incorrectly. If you spot an error before filing, contact the bank's customer service or the department that handles tax forms. Most banks can issue a corrected form within a few weeks. If you've already filed and the bank later sends a corrected form, you may need to file an amended return (Form 1040-X).
Keep your monthly statements or year-end interest summary from your bank. These documents show what you actually earned and can back you up if the IRS questions the discrepancy.
State and local taxes on checking account interest
Most states with income tax also tax interest income. The rules vary by state. Some states follow the federal definition of taxable interest, while others have different thresholds or exemptions. If you live in a state with income tax, you'll report the same interest amount on your state return as you do on your federal return.
A few states don't tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you don't owe state tax on the interest, though you still owe federal tax. Some states also offer exemptions for interest earned by retirees or people over a certain age, so check your state's rules if that applies to you.
Local taxes on interest are rare but exist in some cities and counties. If you live in a jurisdiction with a local income tax, you may need to report the interest there as well. Your state tax form or your local tax authority's website will tell you whether this applies.
Interest on joint accounts and accounts for minors
If you have a joint checking account, the interest is reported to both account holders on separate 1099-INT forms, each showing the full amount earned. You and the other owner must decide how to split the income for tax purposes. If you each own 50%, you each report 50% of the interest. If the split is different, you report your actual share. Keep documentation of the agreement in case the IRS questions it.
If you have a checking account for a minor child, the interest is reported on a 1099-INT in the child's name and Social Security number. The child must report it on their own return if they file one. If the child doesn't file a return, the parent cannot claim the interest on the parent's return. However, a child with very little income may not be required to file. The IRS has separate filing thresholds for dependents based on earned and unearned income.
If you're a custodian of a UTMA or UGMA account for a minor, the interest is reported in the minor's name, not yours. The minor is responsible for reporting it, though a parent may need to file on the child's behalf if the child is too young.
How much tax you'll actually owe on checking account interest
The tax you owe on checking account interest depends on your overall income and tax bracket. Interest is added to your other income and taxed at your marginal rate. If you're in the 22% tax bracket, you owe 22 cents in federal tax for every dollar of interest. If you're in the 12% bracket, you owe 12 cents per dollar.
Most checking account interest is small enough that it doesn't push you into a higher tax bracket. A $200 annual interest payment on a $5,000 balance at 4% APY would generate roughly $44 in federal tax at the 22% rate. State tax would add another $2 to $10 depending on your state.
If you're retired and living on a fixed income, interest income can affect your tax situation in other ways. It may trigger taxation of Social Security benefits or reduce your may be able to access for certain tax credits. If you're in this situation, it's worth running the numbers before the year ends to see whether moving money to a non-interest-bearing account makes sense.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold only determines whether your bank sends a 1099-INT form. You still owe tax on any interest you earned, even if it's $5 or $1. Most people don't report tiny amounts because the tax is negligible, but technically you should include it on your return.
What if I don't receive a 1099-INT from my bank?
Contact your bank and ask whether interest was earned on your account. If it was and the amount is $10 or more, the bank should send a form. If the amount is under $10, the bank isn't required to send one, but you should still report the interest if you file a return. Check your monthly statements to verify the amount.
Can I deduct any expenses related to my checking account?
No. Interest income is reported as-is; you cannot deduct account fees, minimum balance penalties, or other costs against it. Account fees are not deductible for most people. If you're self-employed and use a business checking account, some fees may be deductible as business expenses, but that's separate from the interest reporting.
What if I moved money between accounts during the year and earned interest in multiple places?
Add up all the interest from all accounts and report the total on Schedule 1, line 8b. You don't need to list each account separately unless you have a specific reason to track them. Each bank will send its own 1099-INT, so cross-check the total against what you report.
Does interest earned in a CD count as checking account interest?
No. CDs are reported separately on Form 1099-INT, usually in a different box than savings or checking account interest. The reporting process is the same—you report it on Schedule 1—but it's tracked separately by the bank and the IRS.