Yes, you must report all interest earned on savings accounts to the IRS, even small amounts

The IRS treats interest as taxable income. Your bank sends you a Form 1099-INT each January if you earned $10 or more in interest during the previous year, and you must report that amount on your tax return. If you earned less than $10, the bank may not send the form, but you still owe tax on the interest—you have to track it yourself and report it anyway.

This applies to all interest: savings accounts, money market accounts, certificates of deposit (CDs), and even interest from bonds or Treasury bills. The only exception is interest on certain municipal bonds, which is federally tax-exempt (though your bank will still report it separately on Form 1099-INT).

The tax rate on interest depends on your overall income and filing status. Interest is taxed as ordinary income, meaning it's added to your wages or other earnings and taxed at your marginal rate—anywhere from 10% to 37% depending on your tax bracket. A person earning $50,000 a year pays a different rate than someone earning $150,000, even on the same $500 in interest.

Key Takeaways

  • Banks report interest of $10 or more on Form 1099-INT, but you must report all interest regardless of whether you receive a form.
  • Interest is taxed as ordinary income at your marginal tax rate, not at a flat rate.
  • You report interest on Schedule B (Form 1040) or directly on Form 1040 if your total interest and dividends are under $1,500.
  • If you earn interest in a joint account, each owner reports their proportional share, which the bank may split on the 1099-INT.
  • Failure to report interest can trigger an IRS notice and penalties, even if the amount is small.

How the IRS knows about your interest

Banks are required to report interest to both you and the IRS. When you open a savings account, you provide your Social Security number or tax ID. At the end of the year, the bank calculates all interest paid to that account and files Form 1099-INT with the IRS. You receive a copy in January or early February.

The IRS cross-checks 1099-INT forms against tax returns. If you don't report interest that appears on a 1099-INT filed under your name, the IRS will notice the discrepancy. This doesn't always trigger when ready action, but it can lead to a notice asking you to explain the difference, and penalties and interest charges if you owe additional tax.

Even if you don't receive a 1099-INT because your interest was under $10, the IRS still expects you to report it. You won't face the same automated matching, but if you're audited or if the IRS reviews your return for other reasons, unreported interest can be discovered.

Where to report interest on your tax return

If your total interest and dividends for the year are $1,500 or less, you report the interest directly on Form 1040, line 2b. You don't need to file Schedule B.

If your total interest and dividends exceed $1,500, you must file Schedule B (Form 1040) and attach it to your return. Schedule B asks you to list each source of interest separately—so if you have savings accounts at three different banks, you list each one. You then transfer the total to Form 1040.

If you file electronically, your tax software will guide you through this. If you file by hand, the IRS instructions for Schedule B walk through the process step by step. The form is straightforward: account holder name, account number (or last four digits), and interest earned.

Joint accounts and who reports the interest

When two people own a savings account jointly, the interest belongs to both of you unless you have a written agreement saying otherwise. The bank typically reports the full interest amount on a single 1099-INT under one person's Social Security number—usually whoever is listed first on the account.

If the interest is split equally between you, each person should report half on their own return. If it's split unequally, the person who received the 1099-INT should contact the bank and request a corrected form showing the split, or you can report the correct amount on your return and keep documentation of the split in case the IRS asks.

If only one person's name is on the account but the money belongs to both of you, only that person receives the 1099-INT and must report it. The other person has no reporting obligation unless you file a joint return, in which case the interest is reported on that joint return regardless of whose name is on the account.

What happens if you don't report interest

If you fail to report interest that appears on a 1099-INT, the IRS will eventually send you a notice. The timeline varies—sometimes it takes months, sometimes longer. The notice will ask you to pay the tax owed plus interest (the IRS charges interest on unpaid taxes) and may include a penalty.

The penalty for not reporting income is typically 20% of the underpaid tax, though it can be reduced if you have a reasonable cause for the omission. If the IRS determines the omission was intentional, the penalty can be higher. Even a small amount of unreported interest can trigger a notice, because the IRS processes these matches automatically.

If you discover you didn't report interest in a prior year, you can file an amended return (Form 1040-X) for that year. Filing an amended return voluntarily, before the IRS contacts you, often results in lower or no penalties. You'll still owe the tax and interest, but the penalty may be waived if you show reasonable cause.

Interest in retirement accounts and special situations

Interest earned inside a traditional IRA, Roth IRA, or 401(k) is not reported on your tax return in the year it's earned. You don't receive a 1099-INT for interest inside these accounts. The tax is deferred until you withdraw money from the account (or in the case of a Roth IRA, may never be taxed if you follow the rules).

Interest earned in a Health Savings Account (HSA) is also not reported annually. Like retirement accounts, it's tax-deferred as long as the money stays in the account and is used for may have access to medical expenses.

If you have a savings account in a child's name, the child must report the interest on their own return if they file one. Parents cannot claim their child's interest income on the parents' return. However, if the child's income is below the filing threshold for their age and filing status, they may not need to file a return at all—but they still owe tax on the interest if it exceeds certain limits.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The $10 threshold only determines whether the bank sends you a 1099-INT form. You must report all interest you earned, regardless of the amount. If you earned $3 in interest, you report $3.

What if I lost my 1099-INT form?

Contact your bank and request a duplicate. Banks keep records and can reissue forms. If you can't reach the bank or it's been several years, you can report the interest based on your own records—your account statements show how much interest was credited each month.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount on your return. You cannot net it against fees. However, if you paid significant investment-related fees or advisory fees, you may be able to deduct them separately under other rules, though this is limited for most taxpayers.

What if my bank made a mistake and reported too much interest?

Contact the bank when ready and ask for a corrected 1099-INT. The bank will issue a Form 1099-INT with the corrected amount and file it with the IRS. You report the corrected amount on your return. Keep documentation of the bank's error in case the IRS asks.

Do I report interest from a high-yield savings account differently?

No. Interest from a high-yield savings account is reported the same way as interest from any other savings account—on Schedule B or directly on Form 1040, depending on your total interest and dividends. The rate doesn't matter; all interest is taxable.