Yes, you must report savings account interest as income on your federal tax return
The IRS treats interest earned in a savings account the same way it treats wages or other income — you owe tax on it. Your bank will send you a Form 1099-INT each January showing how much interest you earned during the previous year. You then report that amount on your tax return, usually on Form 1040 or Schedule B, depending on how much interest you earned and whether you have other investment income.
The threshold for reporting is low. If you earned more than $10 in interest during the year, your bank must send you a 1099-INT. Even if you earned less than $10, you still owe tax on it — you just won't receive a form. Many people miss this because the interest feels small, but the IRS expects you to report it regardless.
The tax rate you pay on savings interest depends on your overall income and tax bracket. Interest is taxed as ordinary income, meaning it is added to your wages or other income and taxed at your marginal rate, which can range from 10% to 37% depending on your filing status and total income.
Key Takeaways
- Your bank sends you Form 1099-INT if you earned more than $10 in interest, and you must report that interest on your federal tax return.
- Interest is taxed as ordinary income at your regular tax rate, not at a special lower rate.
- You owe tax on all interest earned, even if your bank does not send you a 1099-INT because the amount was under $10.
- Some states also tax savings interest, so check your state's rules separately from federal requirements.
How the 1099-INT form works and when you receive it
Banks and credit unions issue Form 1099-INT to report interest paid to you during the calendar year. You should receive it by January 31 of the following year. The form shows the total interest in Box 1, and that is the number you report on your tax return. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one.
The bank sends one copy to you and another to the IRS, so the IRS already knows how much interest you earned. This is why reporting it yourself matters — if you do not report it and the IRS notices the discrepancy, you may face penalties and interest charges on the unpaid tax.
If you do not receive a 1099-INT by early February, contact your bank. Sometimes forms are delayed or sent to an old address. You can also log into your online banking portal — many banks now display the year-to-date interest earned in your account statements.
Where to report interest income on your tax return
If your total interest income for the year is $1,500 or less and you have no other investment income, you report it directly on Form 1040, line 2b. You straightforward enter the total amount from your 1099-INT forms and add it to your other income.
If your interest income exceeds $1,500, or if you have other investment income like dividends or capital gains, you must file Schedule B (Interest and Ordinary Dividends) along with your Form 1040. Schedule B asks you to list each source of interest separately, though the final total still goes on your main return. Many tax software programs handle this automatically — they ask you to enter your 1099-INT information, and the software places it in the correct location.
If you file your taxes with a preparer or accountant, bring your 1099-INT forms with you. They will may support the interest is reported in the right place and that you receive any deductions or credits you may be may have access to to that could offset the tax on that interest.
State taxes on savings interest
Federal tax is not the only tax you may owe on savings interest. Most states that have an income tax also tax interest income, and the rules vary. Some states tax it at the same rate as federal tax, while others have different brackets or exemptions.
A few states do not tax interest income at all. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. New Hampshire and Tennessee tax only interest and dividend income, not wages. If you live in one of these states, you may not owe state tax on your savings interest, but you still owe federal tax.
Check your state's tax authority website or ask a tax preparer whether your state taxes savings interest and at what rate. Some states also allow deductions or exemptions for interest earned on certain types of savings accounts, such as those held for education or retirement, though these are less common for regular savings accounts.
How much tax you actually owe on savings interest
The amount of tax depends on your tax bracket, which is determined by your total income for the year. If you earn $50,000 in wages and $500 in savings interest, that $500 is added to your $50,000, and the combined $50,500 is what determines your tax bracket. You do not pay tax on the interest at a flat rate — you pay at whatever marginal rate applies to your income level.
For example, if you are single and your total income (including interest) falls in the 22% tax bracket, you owe roughly 22% of that interest in federal tax. If your income is lower and you fall in the 12% bracket, you owe roughly 12%. The exact amount also depends on deductions, credits, and other factors, which is why the calculation is complex.
A straightforward way to estimate: multiply your interest income by your expected tax bracket percentage. If you earned $200 in interest and you expect to be in the 22% bracket, you might owe around $44 in federal tax on that interest. This is not exact, but it gives you a ballpark figure. Your tax software or preparer will calculate the precise amount.
What happens if you do not report savings interest
The IRS receives a copy of your 1099-INT from your bank, so it knows how much interest you earned. If you do not report it on your return, the IRS will likely notice the discrepancy and send you a notice. You will then owe the unpaid tax plus interest (charged by the IRS, not your bank) and potentially a penalty for underpayment.
The penalty for failing to report income is typically 20% of the unpaid tax, though it can be lower if you have reasonable cause. The IRS interest rate changes quarterly and is currently in the range of 8% to 9% per year, compounded daily. Over time, these charges add up quickly, making it far cheaper to report the interest in the first place.
If you realize you missed reporting interest in a prior year, you can file an amended return (Form 1040-X) for that year. Filing an amended return voluntarily before the IRS contacts you may reduce or eliminate penalties, though you will still owe the tax and interest.
Frequently Asked Questions
Do I have to report interest if I only earned a few dollars?
Yes. The IRS requires you to report all interest income, even if it is less than $10. Your bank only sends you a 1099-INT if you earned more than $10, but that does not mean you skip reporting smaller amounts. If you earned $7 in interest, you still report it on your return.
What if I have interest in a joint savings account?
The bank reports the full interest amount on a single 1099-INT, usually in the name of the first account holder. If you and another person own the account jointly, you must determine how to split the interest for tax purposes. You may split it equally, or based on each person's contribution. Discuss this with the other account holder and keep records of how you divided it, in case the IRS asks.
Can I deduct anything to offset the tax on savings interest?
Not directly. Interest income is added to your other income, and you pay tax on the combined total. However, if you have other deductions or credits — such as the standard deduction, child tax credits, or education credits — those reduce your overall tax bill, which indirectly reduces the tax on your interest. A tax preparer can show you whether you may have access to for any credits or deductions that explore to your situation.
Is savings interest taxed differently than investment income like dividends?
Yes. Savings interest is taxed as ordinary income at your regular tax rate. may have access to dividends and long-term capital gains are often taxed at lower rates (0%, 15%, or 20%, depending on income). Savings interest does not receive this preferential treatment, so it is typically taxed at a higher rate than investment income.
Do I report interest from a money market account the same way?
Yes. Money market accounts, certificates of deposit (CDs), and other savings products that earn interest all work the same way for tax purposes. Your bank sends you a 1099-INT, and you report the interest on your tax return as ordinary income.