Interest counts as income the IRS expects you to report

Yes, interest earned in a savings account is taxable income. The bank or credit union pays you interest on the money you deposit, and the IRS treats that interest as ordinary income—the same category as wages or salary. You owe federal income tax on it, and depending on where you live, you may owe state income tax as well.

The amount of tax you pay depends on your total income for the year and your tax bracket. Someone earning $30,000 a year will pay a lower rate on savings interest than someone earning $150,000. The interest itself is small for most people—a savings account earning 4% to 5% annually generates modest amounts—but it still has to be reported.

Banks and credit unions send you a form called a 1099-INT (Interest Income) if you earned $10 or more in interest during the year. You use this form to report the interest on your tax return. Even if you don't receive a 1099-INT because your interest was under $10, you still owe tax on whatever you earned.

Key Takeaways

  • All interest earned in a savings account is taxable income and must be reported to the IRS on your tax return.
  • Banks send you a 1099-INT form if you earned $10 or more in interest during the year; use this to report the amount.
  • The tax rate on interest depends on your total income and tax bracket, not on the interest amount alone.
  • You owe both federal and state income tax on savings interest, though state tax rules vary by location.
  • Interest under $10 for the year does not require a 1099-INT but is still taxable and should be reported.

How the 1099-INT form works

Your bank or credit union will mail or email you a 1099-INT by January 31 of the following year if you earned $10 or more in interest. The form shows the total interest paid to you during the calendar year. You receive a copy for your records, and the bank sends a copy to the IRS as well.

When you file your tax return, you report the amount from Box 1 of the 1099-INT on your Form 1040 (the main federal tax form) or Schedule B if you have interest income from multiple sources. The IRS already has a copy of the form, so they will notice if you don't report it. Failing to report interest income can trigger an audit or a notice of underreported income.

If you earned interest at multiple banks or credit unions, you will receive a separate 1099-INT from each one. Add them all together when you report your total interest income on your tax return.

What happens if your interest is under $10

Interest under $10 for the year does not trigger a 1099-INT, but you still owe tax on it. You are responsible for tracking and reporting this amount yourself. Many people with small savings balances or low interest rates fall into this category.

To find your exact interest earned, log into your online banking account or check your year-end statements. Most banks show interest paid month by month, so you can add them up. If you cannot find the total, call the bank's customer service line and ask for your interest earned during the calendar year.

Tax brackets and what you actually owe

The tax you owe on savings interest depends on your tax bracket, which is determined by your total income for the year. If you earned $50,000 in wages and $200 in savings interest, your $200 is taxed at your marginal rate—the rate that applies to your highest income dollars.

For 2024, federal tax brackets range from 10% to 37%. A single filer earning $30,000 to $70,000 falls in the 12% bracket, meaning interest income is taxed at 12%. Someone earning $200,000 or more is in a higher bracket and pays a higher rate on the same interest.

State income tax varies widely. Some states (like Florida, Texas, and Wyoming) do not tax income at all. Others tax interest at rates ranging from 1% to over 10%. Check your state's tax website or ask a tax preparer what rate applies to you.

Strategies to minimize interest tax

You cannot avoid tax on interest, but you can reduce the amount of interest you earn and therefore the tax owed. Moving money to a Roth IRA or 401(k) means interest earned inside those accounts is not taxed annually—you only pay tax when you withdraw in retirement, and Roth accounts may not be taxed at all. These accounts have contribution limits and withdrawal rules, so they work best for longer-term savings.

A high-yield savings account (HYSA) earns more interest than a traditional savings account, which means more tax owed. However, the after-tax return is usually still higher than a regular account because the interest rate is so much better. The goal is to earn the most interest possible, not to avoid earning interest.

Some people use Treasury bills or I Bonds (savings bonds issued by the U.S. government) as alternatives to savings accounts. Interest on I Bonds is not taxed until you cash them in, which can delay your tax bill. Treasury bills are taxed federally but not by most states. These are not better or worse than savings accounts—they are different tools with different rules.

Reporting interest on joint accounts

If you own a savings account jointly with another person, the bank reports the full interest amount on a single 1099-INT. The form goes to the Social Security number listed as the primary account holder. You and the other owner must decide how to split the interest for tax purposes.

If you contributed all the money and the other person contributed nothing, you report all the interest. If you each contributed equally, you each report half. The IRS does not police this split—it is between you and the other account owner. However, if the IRS audits either of you, they may ask for documentation of who actually owned the money.

What to do if you did not receive a 1099-INT

If you earned $10 or more in interest but did not receive a 1099-INT by February 15, contact the bank directly. Ask them to send you a corrected form or a statement showing your interest earned. Keep a record of this request in case the IRS asks about it later.

If the bank cannot locate your form, you can still report the interest on your tax return using your own records—your statements or online banking history. Write "No 1099-INT received" next to the amount you report. This protects you if the IRS later asks why you reported interest without a matching form.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The $10 threshold only determines whether the bank sends you a 1099-INT form. You are still required to report all interest income, no matter how small, on your tax return. Track it yourself using your bank statements.

What if I moved money between banks during the year?

Each bank reports only the interest it paid you while you held money there. If you had $5,000 at Bank A for six months earning $100 and then moved it to Bank B for six months earning $120, you will receive two separate 1099-INT forms. Report both amounts on your tax return.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount shown on the 1099-INT. Fees are not deducted from interest income for tax purposes. However, some fees may be deductible as miscellaneous expenses under certain circumstances—ask a tax preparer about your specific situation.

Is interest from a money market account taxed the same way?

Yes. Money market accounts, savings accounts, and certificates of deposit (CDs) all generate interest that is taxed as ordinary income. You will receive a 1099-INT for each if you earned $10 or more, and you report all of it the same way on your tax return.

What if the bank made an error on my 1099-INT?

Contact the bank when ready and ask for a corrected form (called an amended 1099-INT). The bank will send you a corrected copy and file a corrected copy with the IRS. Report the correct amount on your tax return. Keep the corrected form with your tax records.