The IRS doesn't tax savings interest below a certain threshold, but you still have to report it if you earn any

The amount of savings account interest you can earn tax-free depends on your filing status and whether you have other income. For the 2024 tax year, the standard deduction—the amount of income you can earn before owing federal income tax—ranges from $14,600 for a single filer to $29,200 for married couples filing jointly. If your total income, including savings interest, stays below your standard deduction, you owe no federal income tax on that interest.

But here's the catch: you still have to report the interest to the IRS, even if you don't owe tax on it. The bank sends you a 1099-INT form if you earned $10 or more in interest during the year. You report that amount on your tax return. The IRS then calculates whether your total income crosses the threshold where you actually owe tax.

State and local taxes work differently. Some states don't tax interest income at all. Others tax it at the same rate as regular income, with no threshold. You need to check your state's rules separately.

Key Takeaways

  • Federal tax on savings interest kicks in only if your total income exceeds your standard deduction, which is $14,600 to $29,200 depending on filing status in 2024.
  • You must report all interest income of $10 or more to the IRS on Form 1099-INT, even if you owe no federal tax on it.
  • State income tax on interest varies by state—some states don't tax it at all, while others tax it as regular income with no exemption.
  • Interest earned in tax-advantaged accounts like Roth IRAs is not reported on your tax return and is not subject to federal income tax.

How the standard deduction works with savings interest

Your standard deduction is the amount of income you can earn in a tax year before you owe federal income tax. It changes each year and depends on your age and filing status. For 2024, a single person under 65 has a standard deduction of $14,600. A married couple filing jointly has $29,200. If you're 65 or older, the amount is higher—$17,550 for single filers and $32,550 for married couples.

Savings interest counts as part of your total income. So if you're single, earn $12,000 in wages, and earn $3,000 in savings interest, your total income is $15,000. You owe federal income tax because $15,000 exceeds your $14,600 standard deduction. The taxable amount is $400.

If instead you earned $12,000 in wages and $2,000 in interest, your total is $14,000, which is below the $14,600 threshold. You owe no federal income tax. But you still report the $2,000 interest on your return—the IRS just doesn't tax it.

When the bank sends you a 1099-INT form

Banks and savings institutions send a Form 1099-INT to you and to the IRS if you earned $10 or more in interest during the calendar year. You receive it by January 31 of the following year. The form shows the total interest paid to you and the account number.

If you earned less than $10 in interest, the bank doesn't send a 1099-INT, but you still have to report the interest on your tax return if you file one. Some people with very low income don't file a return at all, but the rules for that are strict and depend on your filing status and age.

The 1099-INT goes to the IRS automatically, so the agency knows how much interest you earned. If you don't report it on your return, the IRS will notice the mismatch. It's simpler and safer to report all interest income, even if you don't owe tax on it.

State and local taxes on savings interest

Federal tax is only part of the picture. Your state may also tax savings interest, and the rules vary widely. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, but at a low rate). If you live in one of these states, you owe no state income tax on your savings interest.

Most other states tax interest as regular income. They don't have a threshold like the federal standard deduction. If you earn any interest and live in a state with income tax, you typically owe state tax on that interest, even if you owe no federal tax. The state tax rate varies—it might be 3% to 13% depending on your state and income level.

A few states offer limited exemptions. For example, some states exempt interest earned by people over a certain age, or interest below a certain dollar amount. Check your state's tax authority website or speak with a tax professional if you're unsure about your state's rules.

Interest in retirement accounts and other tax-advantaged accounts

Interest earned inside a Roth IRA, traditional IRA, or 401(k) is not reported on your tax return and is not subject to federal income tax while it sits in the account. You don't receive a 1099-INT for interest earned inside these accounts. The tax treatment depends on the account type and when you withdraw the money, but the interest itself grows tax-free inside the account.

A 529 education savings plan also allows interest to grow tax-free if the money is used for may have access to education expenses. Interest in a Health Savings Account (HSA) is tax-free if used for medical expenses. These accounts are designed to encourage saving for specific goals by removing the tax burden on the interest.

Regular savings accounts, money market accounts, and certificates of deposit (CDs) held outside retirement accounts are not tax-advantaged. All interest from these accounts is taxable and must be reported.

How to report savings interest on your tax return

You report savings interest on Schedule B (Interest and Ordinary Dividends) if you have more than $1,500 in interest and dividend income. If you have $1,500 or less, you can report it directly on Form 1040 without using Schedule B. You list the name of each bank or institution and the amount of interest from each.

The interest amount goes into your total income calculation. The IRS then subtracts your standard deduction. If what's left is positive, that's your taxable income, and you owe tax on it. If your total income is below your standard deduction, you owe no federal tax, but you still report the interest.

If you use tax software, it usually walks you through this process. You enter the amounts from your 1099-INT forms, and the software calculates your tax liability. If you file by hand, the IRS instructions for Form 1040 explain where to enter the interest.

Interest rates and how they affect your tax bill

Higher interest rates mean you earn more interest, which can push your total income above your standard deduction and trigger a tax bill. In recent years, savings account rates have risen significantly—some high-yield savings accounts now pay 4% to 5% APY, compared to less than 0.5% a few years ago. If you have $50,000 in a high-yield savings account earning 5%, you'll earn $2,500 in interest that year, which you must report.

The amount of interest you earn depends on the account balance, the interest rate, and how long the money sits in the account. A higher rate means more interest and a higher tax bill if you're above the standard deduction threshold. This is one reason some people move money to tax-advantaged accounts when interest rates are high—the tax savings can be significant.

Frequently Asked Questions

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

The bank doesn't send a 1099-INT if you earned less than $10, but you still have to report the interest on your tax return if you file one. The IRS expects all interest income to be reported, regardless of amount. If you don't file a return, you don't report it, but filing requirements depend on your income level and filing status.

What if I have savings accounts at multiple banks?

Each bank sends a separate 1099-INT if you earned $10 or more at that bank. You report the interest from each bank on your tax return and add it all together. The total interest from all accounts counts toward your income for the standard deduction calculation.

Can I avoid reporting savings interest by keeping my balance low?

You can't avoid reporting interest you actually earned. If the bank paid you interest, you must report it, even if you earned very little. The only way to avoid interest income is to keep money in a non-interest-bearing account, which most banks no longer offer.

Does savings interest affect my Social Security or other benefits?

Savings interest counts as income for some benefit programs. If you receive Social Security, Supplemental Security Income (SSI), or other means-tested benefits, interest income may reduce your benefit amount or make you ineligible. Check with the program administrator if you're unsure how interest affects your benefits.

What's the difference between reporting interest and owing tax on it?

Reporting means telling the IRS how much interest you earned. Owing tax means you actually have to pay money to the IRS. You can report interest without owing tax if your total income is below your standard deduction. The IRS uses the reported amount to calculate whether you owe tax.