Interest on your bank account counts as taxable income to the IRS
Any interest your bank pays you is taxable income in the year you receive it. The IRS treats it the same way it treats wages or other money you earn — you report it on your tax return, and you may owe federal income tax on it. Some states also tax interest income. This applies to savings accounts, money market accounts, certificates of deposit (CDs), and any other account where the bank pays you interest.
The amount matters less than the fact that you received it. Even $5 in interest is technically taxable. In practice, the IRS only requires you to report interest income if it totals $10 or more in a calendar year — but that is a reporting threshold, not a tax exemption. If you earned less than $10, you do not have to report it, but you still owed the tax on it.
Key Takeaways
- Banks send you a Form 1099-INT each January if you earned $10 or more in interest during the previous year, and you must report that amount on your tax return.
- You report interest income on Schedule B (Form 1040) if your total interest and dividend income exceeds $1,500, or on line 1b of Form 1040 if it is $1,500 or less.
- Interest income is taxed at your ordinary income tax rate, which depends on your total income and filing status — not at a special lower rate.
- Some accounts like Roth IRAs and 529 education savings plans do not generate taxable interest, because the accounts themselves are tax-sheltered.
How the IRS finds out about your interest income
Your bank reports interest to the IRS automatically. In January of each year, the bank sends you a Form 1099-INT showing how much interest you earned in the previous calendar year. The bank also sends a copy to the IRS. If you received interest from multiple banks or accounts, you will receive a separate 1099-INT from each one.
The IRS matches the 1099-INT forms it receives from banks against the income you report on your tax return. If you do not report interest that appears on a 1099-INT, the IRS will notice the discrepancy. You may receive a notice asking you to explain the difference, or the IRS may assess additional tax and penalties.
If you earned less than $10 in interest, your bank will not send you a 1099-INT. You still do not have to report it on your return, because the IRS does not require reporting below that threshold. However, if you earned $10 or more from any single bank, that bank must issue a 1099-INT.
Where to report interest income on your tax return
The location on your return depends on how much total interest and dividend income you have. If your combined interest and dividend income is $1,500 or less, you report it directly on line 1b of Form 1040 (the main federal income tax form). You do not need to file a separate schedule.
If your combined interest and dividend income exceeds $1,500, you must file Schedule B (Interest and Ordinary Dividends) along with your Form 1040. On Schedule B, you list each source of interest separately, add them up, and then transfer the total to Form 1040. This requirement exists so the IRS can cross-check your reported amounts against the 1099-INT forms it received from your banks.
If you file electronically, tax software will usually ask you about interest income and place it in the correct location automatically. If you file by hand, the Form 1040 instructions include a worksheet to help you determine whether you need Schedule B.
What tax rate applies to interest income
Interest is taxed as ordinary income, meaning it is added to your other income (wages, self-employment income, and so on) and taxed at your marginal tax rate. Your marginal rate depends on your total income and your filing status — it is not a flat percentage.
For example, if you are single and earned $50,000 in wages plus $500 in interest, your interest is taxed at the same rate as the last portion of your wages. In 2024, that would be 12 percent federal tax (though rates change yearly and vary by filing status). Interest does not get a preferential rate like long-term capital gains do.
Some types of income, such as may have access to dividends and long-term capital gains, receive lower tax rates. Interest never qualifies for those rates, no matter how long you held the account.
Interest in tax-advantaged accounts does not count as taxable income
If you hold a bank account inside a Roth IRA, a traditional IRA, or a 529 education savings plan, the interest that account earns is not taxable in the year you earn it. The account itself is tax-sheltered, so interest grows without triggering a tax bill until you withdraw the money (or in the case of a Roth IRA, possibly never).
These accounts have strict rules about who can open them, how much you can contribute each year, and when you can withdraw without penalty. But the tax shelter on interest is one of their main benefits. If you have a regular savings account at a bank, that account is not tax-sheltered — only accounts specifically designated as IRAs or 529 plans receive that treatment.
State income tax on interest
In addition to federal tax, most states tax interest income at their ordinary income tax rate. A few states do not have income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), so residents of those states owe no state tax on interest. New Hampshire and Tennessee tax only dividend and interest income, not wages.
If you live in a state with income tax, you will report your interest income on your state return the same way you report it on your federal return — using the 1099-INT your bank sent you. Some states allow deductions or credits for interest income that federal tax does not, so check your state's tax instructions or speak with a tax preparer if you live in a state with its own income tax.
What to do if you did not receive a 1099-INT but earned interest
If you earned $10 or more in interest but your bank did not send you a 1099-INT by late January, contact the bank and ask for it. Banks are required to issue 1099-INT forms by January 31. If the bank cannot locate it or says it was not issued, ask the bank to issue a corrected form or a written statement showing the interest you earned.
You need this form to file your return accurately. If you file without reporting interest you earned, and the IRS later receives a 1099-INT from your bank, you will owe back taxes plus interest and possibly penalties. It is easier to get the form from the bank upfront than to deal with the IRS later.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
No. The IRS does not require you to report interest income below $10, and your bank will not send you a 1099-INT. You still technically owed tax on it, but the IRS does not enforce reporting at that level.
Is interest from a savings account taxed differently than interest from a CD?
No. All interest from bank accounts is taxed the same way — as ordinary income at your marginal tax rate. The type of account does not matter; only the fact that you received interest matters.
What if I moved money between banks during the year?
Each bank reports only the interest it paid you while you held an account there. If you had accounts at three banks, you will receive three separate 1099-INT forms. You add all of them together and report the total on your tax return.
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 have investment expenses (such as fees paid to a financial advisor), those may be deductible under certain circumstances — consult a tax professional about your specific situation.
Does interest in a joint account get split between owners for tax purposes?
The bank reports the full interest amount on a 1099-INT. If the account is truly joint and both owners contributed equally, you and the other owner should each report half the interest on your individual returns. However, the IRS does not automatically know about the split — you and the other owner must coordinate to report it correctly.