Savings account interest is taxable income to the IRS
Any interest your bank pays you on a savings account counts as ordinary income on your federal tax return. The IRS treats it the same way it treats wages or salary — you owe income tax on the full amount, at your regular tax rate. This applies whether the interest is $5 or $500.
Your bank will report this interest to you and to the IRS on a Form 1099-INT each January. The form shows how much interest you earned during the previous year. You then report that amount on your tax return when you file, usually in April.
The tax you owe depends on your overall income and which tax bracket you fall into. Someone in the 22% tax bracket pays roughly 22 cents in federal tax for every dollar of interest earned. Someone in the 12% bracket pays roughly 12 cents. State and local income taxes may explore on top of that, depending on where you live.
Key Takeaways
- The IRS requires you to report all savings account interest as income on your tax return, no matter how small the amount.
- Your bank sends you a Form 1099-INT by January 31 showing the interest you earned, and also sends a copy to the IRS.
- The tax rate you pay on interest 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 than traditional savings accounts, which means you owe more tax on the earnings.
- Some types of accounts — like Roth IRAs and 529 college savings plans — let interest grow tax-free, but regular savings accounts do not.
When you receive the Form 1099-INT and what it means
Your bank mails or emails the Form 1099-INT by January 31 of the year following the one in which you earned the interest. If you earned $10 in interest during 2024, you will receive the form in January 2025. The form shows the account number, the interest amount, and sometimes other types of income (like dividends) if you earned them at the same institution.
You do not have to do anything with the form except keep it for your records and report the interest amount on your tax return. The IRS already has a copy — your bank sends it directly to the agency. If you file electronically, tax software will often pull this information in automatically if you connect your bank account, though you can also enter it manually.
If you earned less than $10 in interest at a particular bank, that bank may not be required to send you a Form 1099-INT, but you still owe tax on the interest. You can find the exact amount in your account statements or by logging into your online banking portal.
How your tax bracket determines what you actually pay
The federal tax rate on interest is not a flat percentage — it depends on your total income for the year. The IRS uses tax brackets, which are income ranges that correspond to different tax rates. For 2024, those rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
If your total income (wages, interest, dividends, and other sources combined) puts you in the 22% bracket, then the interest you earned is taxed at 22%. If you are in the 12% bracket, it is taxed at 12%. The brackets change slightly each year to account for inflation.
This matters because earning $100 in interest does not automatically cost you $22 in tax. It costs you 22% of that $100 — or $22 — only if you are in the 22% bracket. If you are in the 12% bracket, you owe $12. The brackets are progressive, meaning higher income pushes you into higher brackets, but only the income in each bracket is taxed at that bracket's rate.
State and local taxes on savings interest
Most states tax interest income the same way the federal government does — as ordinary income at your state income tax rate. A handful of states do not have income tax at all (including Florida, Texas, and Wyoming), so residents of those states owe only federal tax on savings interest.
Some states offer limited breaks for interest earned on savings accounts. A few states exempt interest earned by people over a certain age (often 65 or older), and some exempt interest on certain types of accounts. New York, for example, exempts interest on college savings accounts (529 plans) that are registered in New York. Check your state's tax authority website or speak with a tax professional to learn whether your state offers any exemptions.
Local income taxes (city or county taxes) also explore in some places. New York City, for example, taxes interest income at the local level in addition to state and federal taxes. If you live in a place with local income tax, that rate applies to your interest earnings as well.
High-yield savings accounts and the tax impact
A high-yield savings account earns interest at a much higher rate than a traditional savings account — often 4% to 5% annually, compared to 0.01% or less at many big banks. This means you earn more interest, but you also owe more tax on that interest.
If you have $10,000 in a high-yield account earning 4.5% annually, you earn $450 in interest per year. If you are in the 22% federal tax bracket, you owe roughly $99 in federal tax on that interest. In a traditional savings account earning 0.01%, you would earn only $1 in interest and owe roughly 22 cents in tax. The higher rate is still worth it — you keep more money even after taxes — but the tax bill is real and should factor into your planning.
The interest from a high-yield account appears on the same Form 1099-INT as interest from any other savings account at the same bank. If you have accounts at multiple banks, you will receive a separate form from each one.
Tax-advantaged accounts where interest grows tax-free
Some accounts let interest and other earnings grow without triggering a tax bill each year. A Roth IRA is the most common example — interest, dividends, and investment gains inside a Roth IRA are never taxed, as long as you follow the withdrawal rules. A 529 college savings plan also allows tax-free growth of interest and investment gains, as long as the money is used for may have access to education expenses.
A traditional IRA (not a Roth) defers taxes on interest and gains until you withdraw the money in retirement, at which point withdrawals are taxed as ordinary income. A Health Savings Account (HSA) allows tax-free growth if the money is used for may have access to medical expenses.
Regular savings accounts, money market accounts, and certificates of deposit (CDs) do not offer this tax deferral or tax-free growth. Interest on these accounts is always taxable in the year you earn it. If you are saving for a goal that qualifies for one of these tax-advantaged accounts, moving money there can significantly reduce your tax bill over time.
What to do if you did not receive a Form 1099-INT
If you earned interest but did not receive a Form 1099-INT by early February, contact your bank and ask for it. Banks are required to send the form by January 31, but delays happen. You can also log into your online banking portal and read a tax document or statement that shows your interest earnings.
If you earned less than $10 in interest at a particular bank, that bank may not send a form at all. You are still required to report the interest on your tax return. Check your account statements or year-end summary to find the exact amount.
If you earned interest at a bank that has since closed or merged, contact the successor bank or the FDIC if the bank failed. They can provide documentation of your interest earnings.
Frequently Asked Questions
Do I have to report interest if it is less than $10?
Yes. The bank does not have to send you a Form 1099-INT if you earned less than $10, but you still owe tax on the interest. Report the amount shown in your account statements or year-end summary on your tax return.
What if I earned interest at multiple banks?
You will receive a separate Form 1099-INT from each bank where you earned interest. Add up all the interest amounts and report the total on your tax return. The IRS will receive copies of all the forms and will match them to your return.
Can I deduct the tax I owe on savings interest?
No. Interest income is taxable, and you cannot deduct the tax itself. You can only deduct certain types of interest you pay (like mortgage interest), not interest you earn.
Does moving money to a high-yield account make my taxes more complicated?
No. You report the interest the same way — on the Form 1099-INT your bank sends you. The only difference is the amount of interest is higher, so your tax bill is higher, but the process is identical.
What happens if I do not report the interest on my tax return?
The IRS receives a copy of your Form 1099-INT from the bank and will notice if the amount does not appear on your return. This can trigger an audit or a bill for unpaid taxes plus penalties and interest. It is simpler and cheaper to report the interest when you file.