Yes, you report savings account interest as income on your tax return

Any interest your savings account earns counts as taxable income. The bank sends you a Form 1099-INT each January showing how much interest you received during the previous year, and you report that amount on your federal tax return. The IRS treats interest the same way it treats wages or other income — you owe tax on it.

The threshold for reporting is low. If your account earned $10 or more in interest during the year, the bank must send you a 1099-INT. Even if you earned less than $10, you still owe tax on whatever interest you made — you just won't receive the form. The bank reports what it paid you, and the IRS receives a copy of that same form, so reporting the interest yourself keeps your return consistent with what the bank reported.

The tax rate on interest income depends on your overall income and tax bracket. Interest is taxed as ordinary income, which means it is taxed at the same rate as your salary or wages. This is different from long-term capital gains, which have lower tax rates. If you have a large savings balance earning significant interest, that interest can push you into a higher tax bracket.

Key Takeaways

  • Banks report savings account interest to the IRS on Form 1099-INT, and you must report the same amount on your tax return.
  • Interest is taxed as ordinary income at your regular tax rate, not at the lower capital gains rate.
  • You must report interest income even if you earned less than $10 and did not receive a 1099-INT form.
  • Interest earned in a traditional IRA or 401(k) is not reported on your tax return that year because those accounts are tax-deferred.
  • High-yield savings accounts and money market accounts follow the same reporting rules as regular savings accounts.

Where the interest appears on your tax return

If you file Form 1040 (the main individual income tax form), interest income goes on Schedule 1, Part I, line 8. You add up all interest from all sources — savings accounts, CDs, money market accounts, bonds — and enter the total. If you use tax software, it usually walks you through entering the 1099-INT information, and the software places the amount in the correct location automatically.

If your total interest income for the year is $1,500 or less, you can report it directly on Form 1040 without filing Schedule 1, though filing Schedule 1 is also correct. If you earned more than $1,500 in interest, Schedule 1 is required. The distinction matters only for filing purposes; either way, the interest counts as income.

Joint filers report interest from both spouses' accounts on the same return. If you are married filing jointly and both of you have savings accounts, each account's interest gets added together and reported as one line item. If you file separately, each spouse reports only the interest from their own accounts.

How the 1099-INT form works

Banks and financial institutions send Form 1099-INT to you and to the IRS by January 31 each year. The form shows the interest paid to you during the previous calendar year. Box 1 on the form contains the total interest. Some forms also show interest in other boxes — for example, Box 3 shows U.S. savings bond interest, and Box 4 shows federal income tax withheld — but Box 1 is the main number you report.

If you have multiple savings accounts at different banks, you receive a separate 1099-INT from each bank. You add all the Box 1 amounts together and report the total on your tax return. If one bank holds multiple accounts in your name (a savings account and a money market account, for example), that bank may combine the interest on a single 1099-INT or issue separate forms depending on how they organize their records.

Keep your 1099-INT forms with your tax records. You do not mail them with your return, but the IRS may ask to see them if your return is examined. The bank keeps a copy for its records and sends a copy to the IRS, so the IRS already knows what interest you earned.

Interest in tax-advantaged accounts does not get reported the same way

Interest earned inside a traditional IRA, Roth IRA, or 401(k) is not reported on your tax return in the year it is earned. These accounts are tax-deferred, meaning the interest compounds inside the account without triggering a tax bill each year. You only report income when you withdraw money from the account (or in the case of a Roth IRA, you may not report it at all, depending on the withdrawal type).

A 529 college savings plan works similarly — interest earned inside the account is not reported annually. However, if you withdraw money from a 529 for non-education expenses, the earnings portion of that withdrawal is taxable and must be reported.

Health Savings Accounts (HSAs) also allow interest to grow tax-free as long as the money stays in the account and is used for may have access to medical expenses. If you withdraw HSA funds for non-medical purposes, the earnings are taxable.

What happens if you do not report the interest

The IRS receives a copy of every 1099-INT that your bank sends to you. If you do not report the interest on your tax return, the IRS will notice the discrepancy when it matches your return against the 1099-INT data. This mismatch can trigger a notice asking you to explain the difference or pay additional tax plus penalties and interest.

The penalty for not reporting interest income is typically 20 percent of the underpaid tax, plus interest on the unpaid amount. If the IRS determines the omission was intentional rather than accidental, the penalty can be higher. Even a small amount of unreported interest can start an audit process that costs far more in time and stress than the tax owed.

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 usually results in lower penalties than waiting to be caught.

Interest from CDs, money market accounts, and bonds

Certificate of Deposit (CD) interest is reported on a 1099-INT just like savings account interest. The bank sends the form showing the interest paid during the year, even if the CD has not yet matured. If you have a five-year CD that you opened in 2023, you receive a 1099-INT each year showing the interest earned that year, and you report each year's interest on the corresponding year's tax return.

Money market accounts are treated identically to savings accounts for tax purposes. The interest is reported on a 1099-INT and taxed as ordinary income. If your money market account is held at a brokerage firm rather than a bank, the reporting may be combined with other investment income on a different form (such as Form 1099-B), but the interest portion is still taxable.

Interest from U.S. Treasury bonds, Treasury bills, and Treasury notes is reported on Form 1099-INT as well. Treasury interest is exempt from state and local income tax but is subject to federal tax. If you live in a state with income tax, you report the Treasury interest on your federal return but not on your state return.

State and local taxes on interest income

Most states that have an income tax also tax interest income. You report the same interest amount on your state tax return as you do on your federal return. A few states — including Florida, Texas, Tennessee, and Wyoming — do not have a state income tax, so residents of those states do not owe state tax on interest, though they still owe federal tax.

Some states exempt interest from certain types of accounts. For example, a few states do not tax interest from savings accounts held by residents over age 55 or 60, though the rules vary significantly by state. Check your state's tax authority website or speak with a tax professional if you live in a state with special rules.

Local income taxes (in cities or counties that impose them) also typically tax interest income at the same rate as state income tax. If you owe local tax, you report the interest on your local return as well.

Frequently Asked Questions

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

Yes. The bank only sends you a 1099-INT if interest reached $10 or more, but you owe tax on all interest you earned, even $1 or $5. If you earned less than $10 and did not receive a form, you still report the interest on your tax return. The IRS expects you to track and report all income.

What if I have interest from a joint account?

The bank reports the full interest amount on a 1099-INT to whichever spouse's Social Security number is listed first on the account. That spouse reports the full amount on their tax return. If you and your spouse want to split the interest for tax purposes, you can do so, but you must file Form 8957 (Allocation of Certain Income to Nominees) to document the split. Most couples straightforward report it on one return.

Can I deduct interest I paid on a loan from my savings account interest?

No. Interest you earned is income; interest you paid on a loan is a separate expense. You cannot offset one against the other on your tax return. Mortgage interest and student loan interest may be deductible under certain conditions, but that deduction is separate from reporting your savings interest as income.

What if the bank made a mistake on the 1099-INT?

Contact the bank and ask them to issue a corrected 1099-INT (marked as a correction). The bank will send the corrected form to you and to the IRS. Once you receive the corrected form, report the correct amount on your tax return. If you already filed using the incorrect amount, you can file an amended return.

Does interest from a savings account count toward the standard deduction?

No. The standard deduction is a fixed dollar amount that reduces your taxable income. Interest income does not affect whether you can claim the standard deduction; it is straightforward added to your other income. If your total income (including interest) is below the standard deduction for your filing status, you may not owe federal tax, but you still report the interest on your return.