You report the interest your high yield savings account earned as income on your federal tax return, using the 1099-INT form your bank sends you
Every dollar your bank pays you in interest counts as taxable income. The IRS wants to know about it, and your bank is required to tell them. Your bank will send you a Form 1099-INT in January or early February showing how much interest you earned during the previous year. You then report that amount on your tax return when you file.
The process is straightforward because the bank does most of the work for you. You receive the form, find the interest amount, and enter it in the right place on your return. The IRS already has a copy of the same form, so they will notice if your return does not match what the bank reported.
Key Takeaways
- Your bank sends you Form 1099-INT by January 31 showing all interest earned in the previous year, and you must report this amount on your tax return.
- Interest from high yield savings accounts is reported on Schedule B (Form 1040) if you earned more than $1,500 in interest income, or directly on Form 1040 if you earned $1,500 or less.
- The interest is taxed as ordinary income at your regular tax rate, not at a special capital gains rate.
- If you earned interest but did not receive a 1099-INT, you still must report the interest based on your account statements.
Understanding Form 1099-INT and when you receive it
Your bank issues a 1099-INT for any account that earned $10 or more in interest during the year. You will receive it by January 31 of the following year. The form shows the account holder's name, the bank's name, and the total interest paid into that account.
If you have multiple high yield savings accounts at different banks, each bank sends its own 1099-INT. If you have multiple accounts at the same bank, that bank may combine the interest on a single form or issue separate forms depending on how the accounts are registered. Check the form carefully to make sure the account information matches your records.
The bank sends copies to you and to the IRS simultaneously. This is why accuracy matters: the IRS will cross-check what you report against what the bank reported. If the numbers do not match, you may receive a notice asking you to explain the difference.
Where to report the interest on your tax return
The location on your return depends on how much total interest you earned from all sources in the year. If your interest income from all accounts and investments totaled $1,500 or less, you report it directly on Form 1040, line 2b, labeled "Interest." You do not need to file Schedule B.
If your total interest income exceeded $1,500, you must use Schedule B (Form 1040), which is a separate worksheet. On Schedule B, you list each source of interest income and the amount. The total from Schedule B then transfers to Form 1040. Schedule B also requires you to report whether you received a 1099-INT for each source.
Many tax software programs ask you questions about your income and automatically place the interest in the correct location. If you are filing by hand or using a simpler form, check the instructions that come with Form 1040 to confirm which route applies to your situation.
How interest income is taxed
Interest from a high yield savings account is taxed as ordinary income, meaning it is added to your wages, self-employment income, and other earnings, and taxed at your regular tax rate. It does not receive the lower tax rates that explore to long-term capital gains or may have access to dividends.
This matters because the tax you owe depends on your total income for the year. If you earned $50,000 in wages and $500 in interest, your taxable income is $50,500. The interest is taxed at whatever rate applies to that $50,500 total, not at a special rate.
The amount of tax you owe on the interest varies by your tax bracket. Someone in the 12% bracket pays roughly 12 cents in federal tax per dollar of interest earned. Someone in the 22% bracket pays roughly 22 cents per dollar. State income tax, if your state has it, is added on top of the federal tax.
What to do if you did not receive a 1099-INT
If you earned interest but your bank did not send you a 1099-INT, you still must report the interest on your return. Banks are required to issue a 1099-INT only if interest reached $10, so if you earned less than that, no form is issued—but you still report it if you are filing a return.
Check your account statements from December to confirm the interest earned. Your bank's online portal usually shows a year-to-date interest total. If the bank made an error and failed to send a required 1099-INT, contact the bank and ask for a corrected form. Keep a record of your request in case the IRS asks questions later.
If you cannot reach the bank or the form does not arrive by mid-February, you can still file your return using the interest amount from your statements. The IRS understands that forms sometimes arrive late. Report what you know to be accurate based on your records.
Reporting interest from joint accounts
If you own a high yield savings account jointly with another person, the bank reports the total interest on a single 1099-INT. The form lists one account holder's name and Social Security number. You and the other owner must decide how to split the interest for tax purposes.
If you own the account equally and contributed equally, you typically each report half the interest. If one person contributed more or owns a larger share, that person reports a larger share of the interest. The split does not have to be exactly 50-50 unless the account is registered that way.
Both owners should keep a record of how they split the interest in case the IRS asks. The person whose name appears on the 1099-INT may receive an IRS notice if their reported amount does not match the form. Having documentation of the agreed split helps resolve any questions.
Keeping records for tax time
Save your 1099-INT forms and your account statements for at least three years. The IRS can audit a return for up to three years after you file, and having the original documents makes it straightforward to prove what you reported was correct.
If you use tax software, the program usually stores your return electronically. If you file by hand or use a tax preparer, keep a paper copy of your completed return along with the 1099-INT and any supporting statements. A straightforward folder labeled with the tax year works well.
You do not need to mail the 1099-INT with your return. The IRS already has a copy from the bank. But keep your copy for your records and to verify that what you reported matches what the bank reported.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
No 1099-INT is issued for interest under $10, but if you are filing a tax return, you must still report any interest you earned. Check your account statements and include the amount on your return.
What if the 1099-INT amount does not match my account statements?
Contact your bank when ready. The form may include interest from accounts you forgot about, or the bank may have made an error. Get a corrected form if needed. Do not file your return until the discrepancy is resolved, because the IRS will notice if your return does not match the bank's report.
Can I deduct the taxes I pay on interest income?
No. Interest income is added to your other income, and you pay tax on the total. You cannot deduct the tax itself. However, if you paid estimated taxes during the year, you can claim a credit for those payments when you file.
How do I report interest if I moved accounts during the year?
You may receive multiple 1099-INT forms if you had accounts at different banks or moved money between institutions. Report each form separately on Schedule B if your total interest exceeded $1,500. If your total was $1,500 or less, add up all the interest and report the total on Form 1040.
Is interest from a high yield savings account taxed differently than interest from a regular savings account?
No. Both are taxed as ordinary income at your regular tax rate. The only difference is the amount of interest earned—a high yield account pays more interest, so you owe more tax on it. The tax treatment is identical.