You pay tax on interest your savings account earns, but not on the money you deposit

The money you put into your savings account is yours—no tax on that. But when the bank pays you interest on that money, that interest counts as income to the IRS, and you owe tax on it. The rate depends on your total income for the year and your tax bracket, not on the bank or the account type.

The bank will send you a form called a 1099-INT at the end of the year if you earned $10 or more in interest. You report that interest on your tax return. If you earned less than $10, the bank may not send a form, but you still owe tax on the interest if you had any tax liability that year.

How much tax you actually pay depends on whether the interest pushes you into a higher tax bracket. If you earned $50 in interest and you're in the 22% bracket, you don't automatically pay 22% on that $50—you pay your marginal rate on that specific $50, which could be 10%, 12%, 22%, or higher depending on your total income.

Key Takeaways

  • Interest earned in a savings account is taxable income; the principal you deposit is not.
  • Banks report interest of $10 or more on a 1099-INT form sent to you and the IRS.
  • You report the interest amount on your tax return, and the tax owed depends on your total income and tax bracket for that year.
  • High-yield savings accounts earn more interest, which means more tax owed, but the after-tax return is usually still better than a regular savings account.
  • If you're a minor or dependent, your parent or guardian may report your interest on their return if your income is below the filing threshold.

How the IRS knows about your interest

Banks are required to report interest to the IRS using the 1099-INT form. The bank keeps a copy for the IRS, sends one to you, and the IRS receives its own copy. When you file your tax return, the IRS matches what you report against what the bank reported. If the numbers don't match, you'll hear about it.

You receive the 1099-INT by January 31 of the year after you earned the interest. If you earned interest in 2024, you'll get the form in January 2025. Even if the bank doesn't send you a form because your interest was under $10, you still need to report it if you file a return.

Some banks offer multiple savings products—regular savings, money market accounts, and certificates of deposit (CDs). Interest from all of them gets reported on the same 1099-INT, combined into one number. If you have accounts at multiple banks, each bank sends its own 1099-INT.

When you don't have to file a return at all

If your total income for the year is below the filing threshold, you may not have to file a tax return even if you earned interest. The threshold changes each year and depends on your age and filing status. For 2024, a single person under 65 with only interest income doesn't have to file if their income was under $14,600.

However, if you had taxes withheld from other income (like a job), you might want to file anyway to get a refund. And if you're a dependent claimed on someone else's return, the rules are different—your threshold is lower.

Even if you're not required to file, the IRS still has the 1099-INT the bank sent. Filing protects you by showing you reported the income correctly. If you don't file and the IRS notices the unreported interest, they can assess penalties and interest on the tax owed.

High-yield savings accounts and tax

A high-yield savings account earns significantly more interest than a regular savings account—sometimes 4% to 5% annually compared to 0.01% or less. That higher interest is taxable just like regular interest. If you have $10,000 in a high-yield account earning 4.5%, you'll owe tax on $450 in interest that year.

The trade-off is usually worth it. Even after paying tax on the higher interest, you come out ahead. If you're in the 22% tax bracket, that $450 in interest costs you about $99 in tax, leaving you with $351 in actual gain. In a regular savings account earning 0.01% on the same $10,000, you'd earn $1 and owe almost nothing in tax—but you'd have far less money.

Some people move money between account types to manage their tax liability, but the IRS doesn't care which account holds the money. Interest is interest, and it's all taxable regardless of where it sits.

What happens if you don't report the interest

If you don't report interest on your tax return and the IRS catches it, you'll owe the tax plus a penalty. The penalty is usually 20% of the unpaid tax, though it can be lower if you have reasonable cause. You'll also owe interest on the unpaid tax, calculated from the original due date.

The IRS doesn't always catch small amounts of unreported interest when ready, but they have three years to assess tax (or longer if they suspect fraud). The longer you wait, the more interest accrues on what you owe.

If you realize you missed reporting interest in a prior year, you can file an amended return using Form 1040-X. Filing the amendment yourself is better than waiting for the IRS to find it, because it shows good faith and may reduce penalties.

Reporting interest on your tax return

You report interest income on Schedule B (Interest and Ordinary Dividend Income) if your interest is over $1,500, or directly on Form 1040 if it's $1,500 or less. Most people with just a savings account will report it directly on the form.

The 1099-INT shows the interest in Box 1. That's the number you put on your return. You don't have to do any math or calculation—you just transfer the amount from the form to the right line on your return.

If you file electronically, tax software will ask you to enter the 1099-INT information, and it fills in the return automatically. If you file by paper, you attach a copy of the 1099-INT to your return.

Special situations: minors, dependents, and joint accounts

If you're a minor and your parent claims you as a dependent, the interest you earned might be reported on their return instead of yours, depending on the amount. If your interest is under $1,250 (for 2024), your parent can report it on their return. If it's between $1,250 and $2,500, you have to file your own return but your parent still reports the interest. Above $2,500, you file and report it yourself.

For a joint savings account, the bank reports the interest to whoever's Social Security number is listed first on the account. That person is responsible for reporting it, even if both account holders benefited from the interest. If you share an account with someone else, clarify with them who will report the interest to avoid both of you claiming it.

If you're married and file jointly, you combine all interest from both spouses' accounts on one return. If you file separately, each person reports only their own interest.

Frequently Asked Questions

Do I owe tax on interest if I only earned a few dollars?

Yes, technically you owe tax on any interest earned, even $1. However, if your total income is below the filing threshold for your age and status, you may not have to file a return. But if you do file, you must report all interest, no matter how small.

What if the bank sends me a 1099-INT but I think the amount is wrong?

Contact the bank and ask them to verify the calculation. If they made an error, they'll send you a corrected 1099-INT (marked as a correction). If you believe the amount is correct but disagree with reporting it, you still have to report it on your return—you can't straightforward ignore a 1099-INT.

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

No. You report the full interest amount on your return. Fees are not deductible against interest income. However, if fees are high enough, they may be deductible as miscellaneous expenses on Schedule A if you itemize deductions, though this is rare and subject to limitations.

Do I have to report interest if I moved the money before the year ended?

Yes. The bank reports interest based on when it was earned, not when you withdrew the money. If you earned interest in 2024 and withdrew the money in 2025, you still report it on your 2024 return.

What if I earned interest in one year but didn't get the 1099-INT until the next year?

Report the interest in the year you earned it, not the year you received the form. The 1099-INT is dated for the year the interest was earned. If the bank sent you a 2024 1099-INT in January 2025, the interest belongs on your 2024 return.