The IRS wants to know about your savings account interest, and your bank will report it
Interest you earn in a high yield savings account is taxable income. The bank holding your account sends you a form called a 1099-INT each January, listing how much interest you earned the previous year. You then report that amount on your federal tax return. You do not pay taxes directly to the bank — you report the interest when you file your taxes, and the IRS treats it like any other income.
The threshold for receiving a 1099-INT varies by bank, but many send the form if you earned $10 or more in interest during the year. Even if your bank does not send you a form, you still owe tax on the interest if you earned any at all. The interest is added to your other income and taxed at your regular income tax rate, which depends on your total earnings for the year.
Key Takeaways
- Your bank sends you a 1099-INT form in January showing interest earned in the previous calendar year, and you report this on your tax return.
- Interest from a high yield savings account is taxed as ordinary income at your regular tax rate, not at a special rate.
- You owe tax on all interest earned, even if the amount is small or your bank does not send you a 1099-INT.
- Keeping your own records of interest earned protects you if there is a discrepancy between what you earned and what the bank reports.
When you receive the 1099-INT and what it shows
In late January or early February, your bank mails or makes available online a 1099-INT for the previous calendar year. The form shows your name, address, and tax ID number (usually your Social Security number), along with the total interest paid to your account during that year. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one.
The 1099-INT comes in two copies: one for you to keep with your records, and one that the bank also sends to the IRS. This means the IRS already knows about your interest income before you file your return. If you report a different amount than what appears on the 1099-INT, the IRS may contact you to ask why.
Some banks allow you to view your 1099-INT online through your account dashboard rather than mailing a paper copy. Check your account settings or contact your bank if you do not receive a form by early February.
How interest income affects your tax bracket and what you owe
Interest earned in a savings account is added to your other income — wages, self-employment earnings, investment gains — to determine your total taxable income for the year. Your tax bracket, which is the percentage of tax you owe on your income, depends on this total. If you earn $500 in interest, that $500 is added to your wages or other income, and you pay tax on the combined amount.
For example, if you earned $45,000 in wages and $300 in savings account interest, your taxable income is $45,300. You do not pay a separate tax rate on the $300 — it is taxed at the same rate as the rest of your income based on your bracket for that year. The tax brackets change each year and depend on whether you file as single, married filing jointly, head of household, or another status.
If your interest income is very small — say, $50 or less — it may not change your tax bracket or the amount you owe. But you still must report it on your return. The IRS does not have a threshold below which interest is ignored.
Reporting interest on your tax return
When you file your federal tax return, you report the interest income on Schedule 1 (Form 1040), which is where you list income from sources other than wages. The line for interest income asks for the total from all your 1099-INT forms combined. If you use tax software, you enter the amount from your 1099-INT, and the software places it in the correct spot on your return automatically.
If you file a paper return by mail, you write the interest amount on the appropriate line of Schedule 1 and attach it to your Form 1040. The instructions that come with the tax forms explain where each number goes. Many people use free tax software provided by the IRS or volunteer tax preparation services, which guide you through entering the information step by step.
You do not need to attach your 1099-INT to your return when you mail it, but you should keep a copy with your tax records for at least three years in case the IRS asks questions later.
State and local taxes on savings interest
Most states also tax interest income, and some cities do as well. The rules vary widely by location. Some states tax interest at the same rate as federal income tax, while others have a separate rate or exclude a small amount of interest from taxation. A few states do not tax interest income at all.
If you live in a state that taxes interest, your state tax return will have a line for interest income similar to the federal return. You report the same amount from your 1099-INT on both your federal and state returns. Your state tax software or instructions will show you where to enter it.
If you are unsure whether your state taxes savings interest, contact your state's tax department or check their website. The department name varies — it may be called the Department of Revenue, Department of Taxation, or similar — but a search for "[your state] income tax" will find the right office.
Keeping records and handling discrepancies
Keep your 1099-INT forms and your own records of interest earned for at least three years. Your bank statements show the interest deposits each month, so you can add them up to verify the total on the 1099-INT. If the amounts do not match, contact your bank to ask why before you file your return.
Discrepancies sometimes happen because of timing — interest posted in late December might appear on a statement dated in January, or a bank might correct an error from a previous month. The bank can explain what happened and may issue a corrected 1099-INT if needed. A corrected form is called a 1099-INT (Corrected) and will be marked clearly as a correction.
If you find an error after you have already filed your return, you can file an amended return using Form 1040-X. This form allows you to correct income, deductions, or credits reported on an earlier return. The IRS processes amended returns more slowly than original returns, so allow extra time.
Interest income and other tax situations
If you are a dependent on someone else's tax return — for example, a teenager claimed by a parent — your interest income still counts as your income and may affect whether you can be claimed as a dependent. The rules are complex and depend on your total income and the income of the person claiming you. If you think this applies to you, ask the person filing your return or consult a tax professional.
If you earned interest in a joint account with another person, the bank may split the interest between you on separate 1099-INT forms, or it may report all of it under one person's name. Check with your bank about how they handle joint accounts. You and the other account holder may need to agree on how to split the interest on your separate tax returns.
Self-employed people and business owners report interest income the same way as employees do — on Schedule 1 of their Form 1040. Interest is not subject to self-employment tax, so it does not increase the Social Security and Medicare taxes you owe.
Frequently Asked Questions
Do I have to pay taxes if I only earned a few dollars in interest?
Yes. The IRS requires you to report all interest income, regardless of the amount. Your bank may not send you a 1099-INT if the interest is below a certain threshold (often $10), but you still owe tax on it. Keep your bank statements as proof of what you earned.
What if my bank did not send me a 1099-INT but I know I earned interest?
Report the interest on your tax return based on your bank statements. The IRS may not have a record of it if the bank did not report it, but you are still required to report all income you earned. Reporting it yourself protects you and keeps your return accurate.
Can I deduct any expenses related to my savings account?
No. Interest earned in a savings account is reported as income with no deductions. You cannot deduct account fees, minimum balance requirements, or any other costs associated with the account. Those costs are personal expenses, not tax-deductible business expenses.
Does interest from a high yield savings account get taxed differently than interest from a regular savings account?
No. Both are taxed the same way — as ordinary income at your regular tax rate. The only difference is the amount of interest you earn, which is higher in a high yield account. More interest means more income to report, but the tax treatment is identical.
What if I moved my money between banks during the year?
Each bank reports only the interest earned in accounts you held with them. If you had accounts at two different banks during the year, you will receive a 1099-INT from each bank showing interest earned while your money was there. Add all the 1099-INT amounts together when you report total interest income on your return.