The Short Answer: Only on Interest Your Bank Pays You
You do not pay federal income tax on the money you deposit into a savings account — that is your own money. You do pay tax on the interest the bank pays you for keeping your money there. The bank reports this interest to the IRS on a form called a 1099-INT, and you report it on your tax return.
The amount of interest you earn depends on the interest rate your bank offers and how long the money sits in the account. Even small amounts of interest count as taxable income. If you earn $10 in interest over a year, that $10 is taxable income, though it may not change what you owe if your total income is low enough.
Key Takeaways
- Your own deposits to a savings account are never taxed — tax only applies to interest the bank pays you.
- Banks report interest earnings on a 1099-INT form, which you receive by January 31 and must report on your tax return.
- Interest is taxed as ordinary income at your regular tax rate, not at a special rate.
- If you earn less than $10 in interest in a year, the bank may not send you a 1099-INT, but you still owe tax on that interest if you have other income.
How Banks Report Your Interest to the IRS
Every January, your bank sends you a 1099-INT form if you earned interest during the previous year. This form shows exactly how much interest you earned. The bank also sends a copy to the IRS, so the IRS already knows about your interest income before you file your tax return.
You take the amount from the 1099-INT and report it on your tax return. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. You add all the interest together and report the total.
Some banks have a threshold — they may not send a 1099-INT if you earned less than $10 in interest that year. However, you still owe tax on that interest even if you do not receive the form. If the IRS later discovers unreported interest, you could face penalties.
What Tax Rate Applies to Savings Interest
Interest from a savings account is taxed as ordinary income, which means it is taxed at the same rate as wages from a job. If you earn $500 in interest and you are in the 22% tax bracket, you owe tax on that $500 at the 22% rate.
This is different from investment income like stock dividends, which sometimes have lower tax rates. Savings account interest does not get that break — it is treated like regular income.
Your tax bracket depends on your total income for the year, not just the interest. If you have a job and earn interest, the interest is added to your wages, and you may move into a higher tax bracket because of it.
When Interest Earnings Might Not Trigger a Tax Bill
If your total income for the year is below a certain threshold, you may not owe any federal income tax at all, even if you earned interest. These thresholds change each year and depend on your age and filing status. For example, in 2024, a single person under 65 with no other income would not owe federal tax if their income was below $14,600.
This does not mean you should ignore the interest. You still need to report it on your tax return, even if you do not owe tax. Filing a return when you have no tax bill can also help you claim refundable tax credits like the Earned Income Tax Credit.
Some states also tax interest income. State tax rules vary widely — some states do not tax interest at all, while others tax it the same way the federal government does. Check your state's tax agency website to understand your state's rules.
How High-Yield Savings Accounts Affect Your Taxes
High-yield savings accounts pay more interest than traditional savings accounts. This means you earn more interest income, which also means you owe more tax on that interest. A high-yield account paying 4% interest will generate more taxable income than a regular account paying 0.01% interest.
The tax treatment is identical — the interest is still ordinary income taxed at your regular rate. The only difference is the amount. If you earn $200 in interest from a high-yield account instead of $5 from a regular account, you report $200 instead of $5 on your tax return.
Some people use high-yield savings accounts specifically because the interest rate is higher, even though they know they will owe tax on the earnings. The after-tax interest is still more than what a low-yield account would provide.
Keeping Records for Tax Time
You do not need to do anything special to track interest — your bank does it for you. The 1099-INT your bank sends in January is your official record. Keep this form with your tax documents.
If you have multiple accounts, organize the 1099-INT forms by bank so you can add them up correctly when you file. If you file your own taxes using tax software, the software will walk you through entering the interest amounts. If you use a tax preparer, bring all your 1099-INT forms with you.
If you notice a discrepancy between what the bank reports and what you think you earned, contact the bank before tax day. Banks sometimes make mistakes, and you want to resolve them before filing.
Frequently Asked Questions
Do I have to file a tax return if I only earned interest and no other income?
If your interest income is below the filing threshold for your age and filing status, you are not required to file. However, filing anyway can be worthwhile if you are due a refund or want to claim tax credits. Check the IRS website for current thresholds, which change yearly.
What if my bank did not send me a 1099-INT but I earned interest?
Banks are only required to send a 1099-INT if you earned $10 or more in interest. If you earned less, you still owe tax on it, but you will not receive the form. Report the interest amount on your tax return based on your account statements or the bank's online records.
Can I deduct savings account fees from my interest income?
No. You report the full interest amount as income. Fees you pay to the bank are not deductible against interest income on your personal tax return, though they may be deductible in other situations depending on the type of fee and your circumstances.
Does moving money between my own savings accounts count as income?
No. Transferring money from one account to another is not income — it is your own money moving around. Only the interest the bank pays you is taxable income.
What if I close my savings account mid-year?
You still owe tax on all the interest you earned before closing it. The bank will report that interest on your 1099-INT for the year you closed the account. The timing of the closure does not change your tax obligation.