All savings account interest above $10 is taxable income
The IRS treats interest you earn on a savings account as ordinary income. That means you owe federal income tax on it at your regular tax rate, the same way you would on wages or salary. Your bank reports this interest to the IRS on a Form 1099-INT, and you report it on your tax return.
The threshold is $10: if you earned $10 or less in interest during the year, your bank does not have to send you a 1099-INT. Above $10, they must report it. You still owe tax on amounts under $10 if you earned them, but the reporting requirement does not kick in until $10.
State income tax works the same way. If your state has an income tax, you owe it on savings interest too. A few states—including Pennsylvania, Illinois, and Mississippi—exempt interest income from state tax, but most do not. You will pay tax at your state rate on top of federal tax.
Key Takeaways
- All savings account interest is taxable as ordinary income at your federal tax rate, reported on Form 1099-INT when it exceeds $10 per year.
- State income tax applies to savings interest in most states, though a handful exempt it entirely.
- You report the interest on your tax return in the year you earned it, even if the bank has not yet sent you the 1099-INT.
- The tax you owe depends on your total income for the year and your tax bracket, not on the interest amount alone.
- High-yield savings accounts earn more interest, which means higher taxable income and a larger tax bill.
When the bank sends you the 1099-INT form
Your bank mails the 1099-INT by January 31 of the year after you earned the interest. If you earned $15 in interest during 2024, you will receive the form in January 2025. The form shows the total interest you earned that calendar year.
The bank sends a copy to you and a copy to the IRS. You use your copy to fill out your tax return. If you do not receive the form by early February, contact your bank—they may have an incorrect address on file, or the interest may have fallen below the $10 threshold and they did not issue one.
If you earned interest at multiple banks, you will receive a separate 1099-INT from each one. You add all the interest amounts together when you report your income.
How your tax bracket determines what you actually owe
The tax on your interest is not a flat percentage. It depends on your total income for the year and which tax bracket you fall into. If you earned $50,000 in wages and $500 in savings interest, that $500 is taxed at your marginal rate—the rate that applies to your highest dollars of income.
For 2024, federal tax brackets range from 10% to 37%. A single filer with $50,000 in income falls in the 22% bracket, so the $500 in interest would be taxed at 22%, meaning roughly $110 in federal tax on that interest. Someone with $200,000 in income falls in the 35% bracket, so the same $500 in interest would cost roughly $175 in federal tax.
This is why high-yield savings accounts can create a larger tax bill than you expect. A 5% APY on $20,000 generates $1,000 in interest. If you are in the 24% bracket, that costs you $240 in federal tax alone, plus state tax if your state taxes interest.
Where to report interest on your tax return
You report savings interest on Schedule B (Interest and Ordinary Dividends) if you use the long form, or directly on Form 1040 if you use the short form. The line is labeled "Interest" and you enter the total from all your 1099-INT forms.
If you use tax software, it usually walks you through entering the 1099-INT information. The software calculates the tax impact automatically. If you file by hand or work with a tax preparer, bring all your 1099-INT forms so they can be included in your return.
You report the interest in the year you earned it, regardless of when you withdraw the money. Interest posted to your account in December 2024 is taxable in 2024, even if you do not touch the account until 2025.
Interest from CDs and money market accounts follows the same rule
Certificates of deposit (CDs) and money market savings accounts generate interest that is taxed the same way as regular savings accounts. Your bank reports CD interest on a 1099-INT, and you owe income tax on it at your regular rate.
With CDs, the interest is taxable in the year it is credited to your account, not when the CD matures. A one-year CD opened in 2024 that matures in 2025 has its interest taxed in 2024 if the interest is posted to the account before December 31, 2024. Check your CD terms to see when interest is credited.
Some CDs allow you to withdraw interest monthly or quarterly without touching the principal. That interest is still taxable in the year you earn it, even though you can choose to leave it in the account.
Tax-advantaged accounts that avoid this tax
Interest earned inside a Roth IRA or Roth 401(k) is not taxable, ever. You can earn thousands in interest and owe no federal income tax on it. The tradeoff is that you cannot withdraw the money before age 59½ without penalties (with some exceptions), and you have annual contribution limits.
A traditional IRA or 401(k) also shields interest from current taxation, but you pay tax when you withdraw the money in retirement. Interest in a 529 education savings plan is tax-free if you use it for may have access to education expenses.
Regular savings accounts, even high-yield ones, do not have this protection. The interest is always taxable in the year you earn it. If you are earning significant interest and want to reduce your tax bill, moving money into a Roth IRA (if you meet income limits) or a 529 plan (if you have education expenses) are the main options.
What happens if you do not report the interest
The IRS receives a copy of every 1099-INT your bank sends. If you do not report the interest on your tax return, the IRS will notice the discrepancy. They may send you a notice asking for the missing income, plus penalties and interest on the unpaid tax.
The penalty for not reporting income is typically 20% of the unpaid tax, plus interest that compounds daily. On $500 in unreported interest at a 22% tax rate, the unpaid tax is $110. The penalty would be $22, plus interest. It is far cheaper to report the interest when you file.
If you made an honest mistake and did not report interest, you can file an amended return (Form 1040-X) to correct it. The sooner you do, the less interest accrues on the unpaid tax.
Frequently Asked Questions
Do I owe tax on interest if I earned less than $10?
No, you do not owe federal income tax on interest under $10. Your bank does not have to report it on a 1099-INT. However, if you earned any interest at all, it is technically taxable income—the $10 threshold is only for the bank's reporting requirement, not for what you actually owe.
Can I deduct savings account fees from the interest I report?
No. You report the gross interest your bank paid you, not the net after fees. Savings account fees are not deductible on your personal tax return. You pay tax on the full interest amount, even if fees reduced your net gain.
What if my bank reports the wrong amount on the 1099-INT?
Contact your bank when ready and ask them to issue a corrected 1099-INT. They will send you a corrected form and file a corrected copy with the IRS. Do not file your tax return until you have the corrected form, or you will have to amend your return later.
Is interest from a joint savings account split between owners for tax purposes?
Not automatically. The bank reports the full interest amount on a 1099-INT to whoever is listed as the account owner or primary account holder. If you own the account jointly but only one person is on the 1099-INT, you will need to split the income on your tax returns based on your actual ownership percentage. Consult a tax preparer if the ownership split is not 50/50.
Do I owe tax on interest if I moved money to a different bank mid-year?
Yes. You owe tax on all interest earned in that calendar year, regardless of which bank held the money or when you moved it. Each bank reports only the interest they paid you while you held money with them. You add all the 1099-INT forms together and report the total.