The short answer: almost none, unless you're very young or very poor
In the United States, all interest earned on a savings account is taxable income. There is no dollar amount of interest that the federal government lets you keep tax-free just because it came from savings. You report it, and you owe tax on it — with two narrow exceptions that explore to almost nobody.
The reason this matters: if your savings account earned $50 in interest last year, that $50 counts as income on your tax return. It gets added to your wages, your side work, any other money you made. If that $50 pushes you over a certain income threshold, you might owe federal tax, or lose a tax credit you were counting on, or trigger taxes on Social Security benefits. Most people with savings accounts don't earn enough interest for this to matter. But if you're saving seriously, or if you're retired and living on savings, it's worth understanding.
Key Takeaways
- All savings account interest is taxable federal income with no dollar threshold — even $1 of interest must be reported.
- You receive a Form 1099-INT from your bank if you earned $10 or more in interest during the year, but you report all interest regardless of whether you get the form.
- The only exceptions are Roth IRA interest (which grows tax-free) and interest in a Coverdell Education Savings Account (which is tax-free if used for education), neither of which is a regular savings account.
- State and local taxes on savings interest vary by location — some states tax it, some don't, and some have special rules for retirees.
- High-yield savings accounts earn more interest, which means more taxable income, so the tax impact is larger even though the account itself is still tax-advantaged.
Why the IRS taxes savings interest at all
Interest is income. When a bank pays you interest, it's paying you for the use of your money. The IRS treats this the same way it treats wages or freelance income — it's money you earned, so it's taxable.
This is different from the money you put into savings in the first place. If you deposit $5,000 of your paycheck into savings, that $5,000 was already taxed as wages. You don't pay tax on it again. But the $50 the bank pays you for letting them use that $5,000 — that's new income, and it's taxable.
The two real exceptions: retirement and education accounts
If you have a Roth IRA, interest and investment gains grow completely tax-free. You never pay federal tax on the interest earned inside the account, and you don't report it on your tax return. But a Roth IRA is not a savings account — it's a retirement account with contribution limits and withdrawal rules. You can't just move your savings into a Roth and avoid taxes; the IRS limits how much you can contribute each year (the limit changes annually, but is currently $7,000 for most people under 50).
A Coverdell Education Savings Account works similarly for education expenses. Interest grows tax-free if the money is used to pay for may have access to education costs — tuition, fees, books, room and board at an accredited school. If you withdraw the money for something else, you owe tax on the earnings plus a 10% penalty. Like a Roth, this has annual contribution limits ($2,000 per year) and is designed for a specific purpose, not general savings.
Neither of these is a regular savings account. Both are special accounts with rules about how much you can put in and what you can use the money for.
How banks report your interest to the IRS
At the end of each year, your bank sends you a Form 1099-INT if you earned $10 or more in interest during that year. This form shows how much interest you earned and goes to the IRS as well. You use it to fill out your tax return.
But here's the important part: you have to report all interest you earned, even if you didn't get a 1099-INT. If you earned $8 in interest and the bank didn't send you a form, you still report that $8 on your return. The $10 threshold is just when the bank is required to send the form — it's not a threshold for what you have to report.
If you have multiple savings accounts at different banks, each one sends its own 1099-INT. You add them all together on your tax return.
State and local taxes on savings interest
Federal tax is only part of the story. Some states also tax interest income, and the rules vary widely.
Most states that have an income tax tax savings interest the same way the federal government does — it's all taxable. A few states don't tax interest at all. Some states exempt interest for people over a certain age (usually 65 or older). A handful of states have special rules for retirees or for interest earned on money held for a certain length of time.
Because state rules change and vary by location, the best way to know what applies to you is to check your state's tax authority website or ask a tax preparer in your state. The difference can be significant — if you live in a state with no income tax, you save state tax on all your interest. If you live in a state with a high income tax rate, the state tax on your interest can be substantial.
Why high-yield savings accounts complicate this
A high-yield savings account earns more interest than a traditional savings account — sometimes 4% or 5% annually, compared to 0.01% at many big banks. This is good for your savings, but it means more taxable income.
If you have $10,000 in a high-yield account earning 5%, you'll earn $500 in interest over a year. That $500 is taxable income. If you're in the 22% federal tax bracket, you'll owe about $110 in federal tax on that interest alone. Add state tax, and the real cost of that interest is lower than it looks.
This doesn't mean high-yield accounts are a bad choice — they're still better than accounts earning almost nothing. But it's worth understanding that the interest you see advertised is the gross amount before taxes.
What to do if your interest income is small
If you earned less than $600 in interest for the year, you might not owe any federal income tax at all, depending on your other income and your filing status. The IRS has a standard deduction — a dollar amount of income you can earn without owing tax. For 2024, the standard deduction is $14,600 for a single person and $29,200 for married couples filing jointly (these numbers change each year).
If your total income — wages, interest, everything — is below your standard deduction, you don't owe federal tax. But you still have to file a return if you're required to, and you still report the interest you earned.
If you're not sure whether you need to file, the IRS has an interactive tool on its website that walks you through the rules for your situation.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold is only when your bank has to send you a Form 1099-INT. You report all interest you earned, no matter how small. If you earned $3 in interest, you report $3.
What if I have a savings account in my child's name?
The child reports the interest as their income. If the child has no other income and the interest is below the standard deduction for a dependent (which is lower than for adults), they might not owe tax. But the interest is still reported on their return, usually on the parent's tax return as part of the child's information.
Can I deduct the taxes I pay on savings interest?
No. Interest income is taxable, but you can't deduct the tax you pay on it. You report the interest as income, and the tax you owe is calculated based on your total income and tax bracket.
Is interest from a money market account treated differently?
No. A money market account is a type of savings account, and all interest from it is taxable the same way. You report it on your tax return just like interest from a regular savings account.
What happens if I don't report interest income?
The IRS receives a copy of your 1099-INT from the bank. If you don't report the interest on your return, the IRS will notice the discrepancy and may send you a notice asking for the missing income and any tax owed, plus penalties and interest on the unpaid tax.