Yes, you must report savings account interest as income on your federal tax return, even if the bank doesn't send you a form
The IRS treats interest earned in a savings account as taxable income. That means if your account earned any interest during the year, you owe tax on it at your ordinary income tax rate. The bank is required to report interest of $10 or more to the IRS on a Form 1099-INT, but you are responsible for reporting all interest you earned, regardless of the amount or whether you receive a form.
This applies to traditional savings accounts, money market accounts, certificates of deposit (CDs), and most other deposit accounts that earn interest. The only exception is accounts specifically designed to be tax-free, like a Coverdell Education Savings Account used for may have access to education expenses or a Health Savings Account used for medical costs.
Key Takeaways
- You must report all savings account interest on your federal tax return, even amounts under $10 that the bank does not report to the IRS.
- The bank sends you a Form 1099-INT if interest reaches $10 or more; if you don't receive one but earned interest, you still report it.
- Interest is taxed at your ordinary income tax rate, which means it increases your total taxable income for the year.
- Some states also tax savings interest, while others do not, depending on where you live and file taxes.
How the IRS knows about your interest and what forms you'll see
Banks send the IRS a copy of Form 1099-INT for each account holder who earned $10 or more in interest during the calendar year. You receive a copy in the mail by January 31. The form shows the account number, the interest amount, and the bank's name and tax ID.
If you earned less than $10, the bank does not send a form to you or the IRS, but you still owe tax on that interest. Keep your bank statements as proof of what you earned. If you file electronically, your tax software will prompt you to enter interest income, and you can reference your statements.
The IRS cross-checks the 1099-INT forms it receives against the income reported on tax returns. If a form shows interest that you did not report, the IRS will likely send you a notice asking for the missing income and any tax owed, plus penalties and interest.
What happens if you don't report the interest
Failing to report savings interest is considered underreporting income. The IRS matches 1099-INT forms to your return automatically. If you received a form and did not report the interest, the IRS will send you a CP2000 notice proposing additional tax, penalties, and interest on the unpaid amount.
The penalty for underreporting income is typically 20 percent of the unpaid tax, plus interest that accrues from the original due date. If the underreporting is deemed intentional, the penalty can reach 75 percent. Even if the amount is small, the process is time-consuming and costs money to resolve.
The best approach is to report the interest when you file. If you made a mistake on a prior return, you can file an amended return (Form 1040-X) to correct it, which often stops penalties from growing.
How much tax you'll owe on savings interest
Savings interest is taxed at your marginal tax rate, which is the tax bracket you fall into based on your total income for the year. If you earn $50,000 in wages and $500 in savings interest, that $500 is taxed at the same rate as your last dollar of wages, not at a special lower rate.
For 2024, federal tax brackets range from 10 percent to 37 percent depending on your filing status and total income. A person in the 22 percent bracket who earns $1,000 in savings interest will owe roughly $220 in federal tax on that interest alone (before accounting for deductions or credits).
High-yield savings accounts and CDs earn more interest than traditional savings accounts, which means higher tax bills. A $50,000 CD earning 4.5 percent annually generates $2,250 in interest, which at a 24 percent tax rate costs $540 in federal tax. This is why some people use tax-advantaged accounts like IRAs or HSAs when they have the option.
State taxes on savings interest
Most states tax savings interest the same way the federal government does—as ordinary income. However, a few states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
If you live in a state that taxes interest, you report it on your state income tax return using the same 1099-INT form. Some states have their own tax brackets and rates, so your state tax bill may be higher or lower than your federal bill on the same interest amount.
If you moved during the year, you may owe tax to two states. Check your state's tax authority website or speak with a tax preparer to understand your state's rules.
When you don't have to report interest (and when you do)
You do not report interest earned in a Roth IRA, traditional IRA, or 401(k) on your annual tax return. Interest in these accounts grows tax-deferred or tax-free, depending on the account type. You only report withdrawals from these accounts when you take them out, and even then, only the taxable portion is reported.
You also do not report interest in a Health Savings Account (HSA) if the interest is used for may have access to medical expenses, or in a Coverdell Education Savings Account if used for may have access to education expenses. However, if you withdraw money from these accounts for non-may have access to purposes, you may owe tax on the interest portion.
Interest in a regular taxable savings account, money market account, or CD always counts as taxable income and must be reported, regardless of how much you earned or whether you spent the interest or reinvested it.
How to report savings interest on your tax return
If you file Form 1040 (the standard federal income tax form), you report interest income on Schedule 1, Part I, line 8. If you use tax software, it will ask you to enter the total interest from all your accounts. You can add up the amounts from all your 1099-INT forms, or if you earned interest but did not receive a form, add up the amounts from your bank statements.
The total interest goes on Schedule 1, which feeds into your Form 1040. The interest is added to your other income (wages, self-employment income, dividends, etc.) to calculate your total taxable income.
If you earned interest in multiple accounts, you can list each one separately or combine them into one total. The IRS does not require you to break them out by account, only to report the total.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The bank only sends a 1099-INT form if interest reaches $10 or more, but you owe tax on all interest you earned, even $1. Keep your bank statements as proof and report the amount on your return.
What if the 1099-INT the bank sent me is wrong?
Contact the bank and ask them to issue a corrected form (Form 1099-INT with a "CORRECTED" box marked). The bank will send the corrected form to you and the IRS. If you already filed your return, you can file an amended return once you receive the corrected form.
Can I deduct the taxes I pay on savings interest?
No. Interest income is added to your taxable income, but you cannot deduct the tax you owe on it. You can only deduct certain types of interest you pay, such as mortgage interest or student loan interest, not interest you earn.
Does interest from a joint savings account get split between both owners for tax purposes?
Not automatically. The bank reports the full interest amount to the IRS under the Social Security number of the account owner listed first on the account. If the account is truly owned equally by two people, you may need to split the interest between your two returns, but you should consult a tax preparer or your state's tax authority for guidance, as rules vary.
What if I moved my money to a high-yield savings account to earn more interest?
You still report all the interest you earned, and you owe tax on it at your ordinary income tax rate. High-yield accounts earn more interest, which means a higher tax bill. Some people use tax-advantaged accounts like IRAs or HSAs to avoid this, but those accounts have contribution limits and withdrawal rules.