You pay tax on the interest your savings account earns, not on the money you deposit
The money you put into a savings account is yours — you do not owe tax on it. But the bank pays you interest (a small amount of money as a reward for letting them use your deposit), and that interest counts as income. You report it on your tax return, just like wages from a job.
The amount of interest is usually small. A savings account earning 4% per year on $1,000 generates $40 in interest. That $40 is what gets taxed, not the $1,000. The tax you owe depends on your overall income and what tax bracket you fall into — the same way it does for any other income.
The bank tracks this interest and sends you a form in January called a 1099-INT (Interest Income form). You use that form when you file your taxes. If the interest is very small — under $10 in most cases — the bank may not send the form, but you still owe tax on it if you had any tax liability that year.
Key Takeaways
- You do not pay tax on the money you deposit into a savings account, only on the interest the bank pays you.
- The bank sends you a 1099-INT form in January showing how much interest you earned that year.
- You report that interest as income on your tax return, and the tax owed depends on your total income for the year.
- Interest earned in a savings account is taxed as ordinary income, at the same rate as wages or other income.
How the bank reports your interest to the IRS
Every January, your bank mails or emails you a 1099-INT form showing the total interest you earned in the previous year. The bank also sends a copy to the IRS. This is how the government knows you received that income.
You take the amount from box 1 of the 1099-INT and enter it on your tax return. If you use tax software (like TurboTax or the IRS Free File program), you can type in the number from the form and the software calculates the tax for you. If you file by hand or with a tax preparer, you give them the form.
If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. Add them all together when you report your total interest income.
When interest is too small to report
Banks are not required to send a 1099-INT if the interest is less than $10 for the year. But that does not mean you skip reporting it. If you earned any interest at all and you had a tax liability (meaning you owed taxes), you must report it.
The reason: the IRS matches the 1099-INT forms it receives from banks against the tax returns people file. If the bank reported $8 in interest but you did not mention it on your return, the IRS may send you a notice asking why. It is simpler to report it upfront, even if the amount is small.
If you earned less than $10 in interest and you had no tax liability for the year (meaning you did not owe taxes), reporting it or not reporting it makes no practical difference — you owed zero either way.
Different types of savings accounts and their tax treatment
Most savings accounts work the same way: you pay tax on the interest. But a few types have different rules.
A traditional IRA or 401(k) is a retirement account where interest and investment gains grow without being taxed each year. You pay tax later, when you withdraw the money in retirement. A Roth IRA is different — you pay tax on the money going in, but the interest and growth are never taxed, even when you withdraw it.
A regular savings account (sometimes called a taxable savings account) is not a retirement account. Interest is taxed every year. A 529 college savings plan is a special account where interest grows tax-free if you use the money for education expenses, but you pay tax on the interest if you withdraw it for other reasons.
If you are not sure what type of account you have, check your account statement or log into your online banking. The account name usually tells you — "Savings Account," "Money Market Account," "IRA," or "529 Plan."
How much tax you actually owe on savings interest
The tax rate on interest depends on your total income for the year and your filing status (single, married, head of household, and so on). Interest is taxed as ordinary income, meaning it is added to your wages, self-employment income, and any other income you had.
If you earned $35,000 in wages and $100 in savings interest, your taxable income is $35,100. The tax on that $100 depends on what tax bracket you fall into. Someone in the 12% tax bracket pays roughly $12 in tax on that $100. Someone in the 22% bracket pays roughly $22.
You do not calculate this yourself — your tax software or tax preparer does it. You just report the interest amount from your 1099-INT.
Keeping records of your savings accounts
Keep your 1099-INT forms for at least three years. The IRS can audit your return up to three years back (longer in some cases), and you may need to show proof of the interest you reported.
You do not need to keep monthly statements, but it is a good idea to keep at least one statement per year showing your account balance and the interest earned. If you close an account during the year, keep the final statement showing the interest earned up to the closing date.
If you move banks or your bank merges with another, the new bank will still send you a 1099-INT for the interest earned while your money was there. You do not lose the record.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
The bank does not have to send you a 1099-INT if interest is under $10, but you still owe tax on it if you had any tax liability that year. It is simpler to report it than to risk an IRS notice. If you had no tax liability, it makes no practical difference.
What if I did not get a 1099-INT but I know I earned interest?
Contact your bank and ask them to send it. If the interest was under $10, they may not have mailed one automatically. You can also log into your online banking and look at your account statements — they show the interest earned each month. Add it up and report the total on your tax return.
Can I deduct the tax I pay on savings interest?
No. Interest income is added to your other income, and you pay tax on the total. You cannot deduct the tax itself. However, if you have investment losses or certain other deductions, those may lower your overall tax liability.
Does a joint savings account change how interest is taxed?
If you own a savings account with someone else, the bank reports the full interest amount on the 1099-INT. You and the other owner must decide how to split it for tax purposes — usually 50/50, but it depends on your agreement. Each person reports their share on their own tax return.
What happens if I move money between savings accounts — do I pay tax on the transfer?
No. Moving money from one savings account to another is not a taxable event. You only pay tax on the interest the bank pays you, not on transfers of your own money.