The IRS doesn't tax small amounts of savings interest, but the threshold is very low
The standard deduction is the amount of income you can earn without owing federal income tax. For savings account interest, you report it on your tax return only if your total interest income for the year exceeds $10 (for most individual filers in 2024). This means if your savings account earned $9.50 in interest, you owe no federal tax on it and don't need to report it.
However, this $10 threshold is just the reporting requirement — not a tax-free allowance. If you earn $15 in interest, you report all $15 and pay tax on all of it. The $10 rule straightforward means the IRS doesn't require you to file a return or report the interest if you're below that amount and have no other income.
State income tax works differently. Some states don't tax interest income at all, while others tax every dollar. Your state's rules are separate from the federal $10 threshold, so you may owe state tax even if you owe nothing to the IRS.
Key Takeaways
- You only report savings interest to the IRS if your total interest income exceeds $10 per year, though you still owe tax on any amount above that threshold.
- The $10 reporting threshold applies to federal taxes only — state income tax rules vary by location and may tax interest starting at $0.
- Your bank will send you a Form 1099-INT if you earned $10 or more in interest during the year, which you use to report the income on your tax return.
- Interest earned in a traditional IRA or 401(k) is not taxed until you withdraw money, but interest in a regular savings account is taxed in the year it's earned.
- Roth IRA interest and earnings grow tax-free and are never taxed when you withdraw them, making them different from regular savings accounts.
How the IRS knows about your interest income
Banks report interest earnings to the IRS using a form called the 1099-INT. Your bank sends you a copy and sends another to the IRS. If you earned $10 or more in interest during the calendar year, your bank must file this form — it's not optional.
The IRS matches the 1099-INT they receive from your bank against your tax return. If you don't report the interest and the IRS has a record of it, you'll likely receive a notice asking you to explain the discrepancy. Even if you think the amount is small, reporting it prevents problems later.
If you earned less than $10, your bank may still send you a 1099-INT for informational purposes, but they're not required to. Either way, you don't have to report it to the IRS if it's under $10 and you have no other income requiring you to file.
Tax-advantaged accounts where interest grows differently
Interest earned inside a traditional IRA or 401(k) is not taxed while the money sits in the account. You pay income tax on the interest only when you withdraw the money in retirement. This means your interest can compound year after year without being reduced by taxes, which is why these accounts are called tax-deferred.
A Roth IRA works the opposite way. You pay taxes on the money before you put it in, but the interest and all earnings grow completely tax-free. When you withdraw money in retirement, you owe no tax on any of it — not the original deposit and not the interest. This makes Roth accounts powerful for long-term savers, though you have income limits for contributing.
A regular savings account, money market account, or certificate of deposit (CD) offers no tax deferral. You owe federal income tax on the interest in the year it's earned, even if you don't touch the money. This is why the interest rate matters less than it seems — a 4% rate in a regular savings account is reduced by your tax rate, while the same rate in a Roth IRA is not.
What happens if you earn interest across multiple accounts
If you have savings accounts at different banks, or a savings account plus a CD plus a money market account, you add up all the interest from all of them. The $10 threshold applies to your total interest income, not to each account separately. So if one account earned $6 and another earned $5, your total is $11, and you must report all $11 to the IRS.
Each bank reports only the interest from their own account on their 1099-INT. You're responsible for adding them together and reporting the total on your tax return. The IRS will eventually see all the 1099-INT forms from all your banks, so they'll know your total as well.
State income tax on savings interest
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 is phasing that out). If you live in one of these states, you owe no state income tax on your savings interest regardless of the amount.
Every other state taxes interest income, but the rules vary. Some states use the same $10 threshold as the federal government. Others tax every dollar of interest with no threshold. A few states offer small exemptions or deductions for interest income, but these are rare and usually explore only to retirees or people over a certain age.
Check your state's tax agency website or speak with a tax preparer who knows your state's rules. The amount you owe in state tax can be significant even when federal tax is small, so it's worth understanding your state's specific requirements.
How interest is taxed at different income levels
The amount of tax you owe on savings interest depends on your tax bracket — the percentage rate applied to your income. If you're in the 12% federal tax bracket, $100 in interest costs you $12 in federal tax. If you're in the 24% bracket, the same $100 costs you $24.
Your tax bracket is determined by your total income for the year, not just your interest. If you have a job and earn $50,000 a year, your interest income is added to that $50,000, and the combined total determines your bracket. This means earning interest can push you into a higher tax bracket, increasing the tax rate on all your income.
Self-employed people and those with investment income should be especially careful about interest accumulation, because you may owe estimated taxes — quarterly payments to the IRS — if your interest income is large enough. This is rare for typical savings accounts but can happen with high-yield savings accounts or CDs earning substantial amounts.
Frequently Asked Questions
Do I have to report $10 in interest if that's exactly what I earned?
No. The threshold is "more than $10," so if you earned exactly $10, you don't have to report it. If you earned $10.01, you must report the full amount. Your bank will send you a 1099-INT if you hit $10 or more, but you're not required to file a return based solely on that interest if it's your only income.
What if I have interest in a Roth IRA — do I still owe tax on it?
No. Interest earned inside a Roth IRA is never taxed, and you never report it to the IRS. The tax-free growth is one of the main reasons people use Roth accounts. You only pay taxes on money you withdraw, and even then, only if you withdraw earnings before age 59½ and don't meet certain exceptions.
Can I deduct savings account interest as a loss on my taxes?
No. Interest income is always taxable; you cannot deduct it or claim it as a loss. The only way to reduce the tax is to earn less interest (by keeping less money in savings) or to hold the money in a tax-advantaged account like a Roth IRA or traditional IRA.
If I move money between accounts, does that count as interest income?
No. Moving money from one account to another is not income — it's just moving your own money. Only the interest the bank pays you counts as income. If you transfer $5,000 from savings to checking, that's not taxable. If the savings account earned $50 in interest before you moved it, that $50 is taxable.
Do I owe taxes on interest if I'm claimed as a dependent?
Yes, but the rules are different. If you're a dependent, you can earn a small amount of interest (the standard deduction for dependents, which varies by year) before owing federal tax. However, your parents may not be able to claim you as a dependent if your income exceeds certain limits, so it's worth checking. State taxes may also explore separately.