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

Interest your bank pays you on a savings account is taxable income. You do not have a choice about whether to claim it — if you earned it, the IRS expects you to report it. The bank will send you a form called a 1099-INT (Interest Income) if you earned $10 or more in interest during the year. Even if you earned less than $10 and do not receive a 1099-INT, you still owe tax on that interest.

The amount is usually small — a savings account earning 4% on $1,000 generates only $40 in interest per year — but the rule applies no matter the size. When you file your tax return, you report this interest income on your Form 1040 or whichever return form you use.

Key Takeaways

  • Banks send a 1099-INT form if you earn $10 or more in interest during the year, but you owe tax on all interest earned, even amounts below $10.
  • Interest income goes on your federal tax return as ordinary income and is taxed at your regular income tax rate.
  • The bank reports the interest to both you and the IRS, so the IRS already knows about it before you file.
  • Some states also tax savings account interest, depending on where you live and the type of account you hold.

When the bank sends you a 1099-INT form

Your bank mails or emails you a 1099-INT by January 31 each year if you earned $10 or more in interest during the previous calendar year. The form shows the total interest paid to your account. You receive one copy, and the bank sends a copy to the IRS at the same time.

If you have multiple savings accounts at different banks, you may receive more than one 1099-INT — one from each bank. If you have multiple accounts at the same bank, they usually combine the interest on a single form.

Keep the 1099-INT with your tax records. You will need it when you file your return to make sure the amount you report matches what the bank reported to the IRS.

How to report interest income on your tax return

On your Form 1040 (the main federal income tax form), interest income goes on the line labeled "Interest" in the income section. If you use tax software, it will ask you to enter the amount from your 1099-INT. If you file by hand or with a tax professional, you write the amount on the correct line.

The interest is added to your other income and taxed at your regular income tax rate. If you earn $50,000 a year and your savings account generates $100 in interest, you report $50,100 in total income. You do not pay a separate tax on the interest — it is straightforward part of your overall income.

If you earned less than $10 in interest and did not receive a 1099-INT, you still report the interest on your return. You may need to write in the amount yourself or contact the bank to find out exactly how much you earned.

State income tax on savings account interest

Most states that have an income tax also tax savings account interest the same way the federal government does. You report it on your state tax return using the same amount from your 1099-INT.

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 one of these states, you do not owe state tax on your savings interest, though you still owe federal tax.

Some states offer tax breaks on interest earned in certain types of savings accounts, such as accounts for people over 65 or accounts held for education. Check your state's tax agency website or ask a tax professional whether any special rules explore to your situation.

What happens if you do not report the interest

The IRS receives a copy of your 1099-INT at the same time the bank sends it to you. If you do not report the interest on your return, the IRS will notice the mismatch between what you reported and what the bank reported. This can trigger a letter asking you to explain the difference or pay additional tax plus penalties.

The penalty for not reporting income is usually 20% of the unpaid tax, plus interest on the unpaid amount. It is much simpler to report the interest when you file.

Interest from different types of savings accounts

Interest from a regular savings account, a high-yield savings account, a money market account, or a certificate of deposit (CD) all counts as taxable income. The type of account does not matter — if the bank pays you interest, you report it.

Interest from a tax-advantaged account like a Roth IRA or a 529 education savings plan works differently. Interest earned inside these accounts is not taxed in the year it is earned, and you do not receive a 1099-INT for it. You only pay tax (or no tax at all, depending on the account type) when you withdraw the money. If you have these types of accounts, the interest inside them does not go on your tax return.

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 owe tax on all interest earned, no matter the amount. Contact your bank to find out how much you earned, and report it on your return.

What if I earned interest from two different banks?

You will likely receive two separate 1099-INT forms, one from each bank. Report the interest from each form on your tax return. You can add them together on the interest line, or list them separately depending on what your tax software or form requires.

Can I deduct anything from my interest income?

No. Interest income is reported as-is with no deductions. However, if you borrowed money to fund a savings account (which is unusual), you might be able to deduct the interest you paid on that loan, but that is a separate deduction from your interest income.

Does interest in a joint account get split between owners for tax purposes?

Not automatically. The bank reports the full interest amount on a 1099-INT, and you and the account holder need to decide how to split it for tax purposes based on who owns what percentage of the account. If you own it 50-50, you each report 50% of the interest. Keep records of your agreement in case the IRS asks.

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

Contact the bank and ask them to issue a corrected form called a 1099-INT with a "Corrected" label. The bank will send the corrected form to you and the IRS. Once you receive it, report the corrected amount on your tax return instead of the original amount.