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

The IRS treats interest earned in a savings account the same way it treats wages or salary — as taxable income. If your bank paid you interest during the year, that money counts toward your total income, and you report it on your tax return. There is no minimum amount that makes interest "too small to report." Even $1 in interest must be included.

Your bank will send you a Form 1099-INT in January or early February if you earned $10 or more in interest during the previous year. If you earned less than $10, the bank is not required to send the form, but you still owe tax on that interest if you had any. You report the interest on your federal return whether or not you receive a 1099-INT.

The tax you owe on interest depends on your overall income and tax bracket. Interest is taxed as ordinary income, meaning it is added to your other income and taxed at your regular rate — not at a special lower rate. If you earned $500 in interest and you are in the 22% tax bracket, you would owe roughly $110 in federal tax on that interest (before any deductions or credits reduce your final bill).

Key Takeaways

  • All savings account interest must be reported on your federal tax return, regardless of the amount.
  • Your bank sends Form 1099-INT only if you earned $10 or more in interest, but you report interest even if you did not receive the form.
  • Interest is taxed as ordinary income at your regular tax rate, not at a preferential rate.
  • You report interest on Schedule 1 (Form 1040) or directly on your return, depending on your filing method and total income.
  • Some states also tax interest income, so check your state's rules in addition to federal requirements.

Where interest appears on your tax return

If you file Form 1040 (the standard federal income tax return), you report interest income on Schedule 1, Part I, line 8. You add up all interest from all sources — savings accounts, money market accounts, CDs, bonds — and enter the total on that line. Then you transfer that amount to your main Form 1040.

If you use tax software, the program will ask you directly about interest income and place it in the correct spot automatically. If you file by hand, you write the total on Schedule 1 and attach it to your Form 1040. The IRS matches the amount on your return to the 1099-INT your bank reported, so the numbers need to match or you will receive a notice.

If your only income is interest and it is under a certain threshold (which varies by age and filing status), you might not owe federal income tax at all. But you still file a return to report the interest. A tax professional or the IRS Free File program can tell you whether you have a filing requirement based on your specific situation.

How the IRS tracks your interest income

Banks report interest paid to both you and the IRS on Form 1099-INT. The IRS receives a copy of every 1099-INT issued, so they know how much interest you earned even before you file your return. If you do not report that interest on your return, the IRS will notice the discrepancy and may send you a bill for the unpaid tax plus penalties and interest.

The matching process is automated. The IRS computer system compares the 1099-INT amount to what you reported on your return. If the numbers do not match, you will receive a notice asking you to explain the difference or pay the additional tax. This is one of the most common reasons for IRS notices, and it is easily avoided by reporting all interest income.

If you had multiple savings accounts or moved money between banks during the year, you may receive more than one 1099-INT. Add up the interest from all of them and report the total on your return. Keep copies of all 1099-INTs you receive for your records.

State income tax on savings interest

Most states that have an income tax also tax interest income. The rules vary by state. Some states tax interest at the same rate as federal tax, while others have different rates. A few states do not tax interest at all — New Hampshire and Tennessee, for example, do not tax interest or dividend income, though they tax other forms of income.

When you file your state return, you will report interest income in a similar way to your federal return. Your state tax form will have a line for interest income, and you enter the same total you reported to the federal government. Some states use the federal 1099-INT directly; others require you to report it separately.

Check your state's tax website or speak with a tax preparer to understand your state's rules. The amount you owe in state tax can be significant if you have substantial interest income, so it is worth understanding your state's requirements.

Interest from different account types

All interest is reportable, regardless of the account type. A high-yield savings account, a traditional savings account, a money market account, and a certificate of deposit (CD) all generate interest that must be reported. If you earned interest from any of these accounts, it goes on your tax return.

Some accounts offer promotional interest rates or bonus interest for opening an account or meeting certain conditions. That bonus interest is still taxable income and must be reported. If the bank paid you $200 as a bonus for opening an account, that $200 counts as interest income on your return.

Interest from joint accounts is reported based on who owns the account. If you and another person own a savings account jointly, the bank may issue a 1099-INT in one person's name, or it may split the interest between you. Check the 1099-INT carefully to see whose name and Social Security number appear on it. If the interest is split incorrectly, contact the bank to request a corrected form.

What happens if you do not report interest income

If you do not report interest income on your return, the IRS will eventually notice. Because banks report interest to the IRS automatically, there is a record of what you earned. The IRS will send you a notice of underreported income, and you will owe back taxes plus a penalty (usually 20% of the unpaid tax) and interest on the unpaid amount.

The penalty and interest can add up quickly. If you owed $500 in tax on unreported interest and did not pay it for two years, you might end up owing $600 or more by the time the IRS catches up. Reporting the interest when you file your return avoids this problem entirely.

If you realize you missed reporting interest in a prior year, you can file an amended return (Form 1040-X) to correct it. Filing an amended return voluntarily, before the IRS contacts you, can reduce or eliminate penalties in some cases. The sooner you correct the error, the better.

Interest income below the reporting threshold

Even though banks only send a 1099-INT if you earned $10 or more in interest, you must report all interest, including amounts under $10. If you earned $3 in interest and did not receive a 1099-INT, you still report that $3 on your return. The $10 threshold is only for the bank's reporting requirement, not for your filing requirement.

In practice, very small amounts of interest rarely trigger an IRS notice because the amounts are so small. But technically, you are required to report it. If you have multiple accounts with small amounts of interest, add them all up and report the total.

If you are unsure whether you have a filing requirement at all (meaning whether you need to file a return), the IRS provides worksheets and tools on its website to help you determine this based on your age, filing status, and total income. Interest income counts toward your total income for this calculation.

Frequently Asked Questions

Do I report interest if I closed the account before the end of the year?

Yes. The bank reports all interest earned during the calendar year, regardless of when you closed the account. If you earned interest in January and closed the account in March, that interest still appears on your 1099-INT and must be reported on your return.

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

Contact the bank when ready and ask for a corrected form (called an amended 1099-INT). The bank will issue a corrected form and send a copy to the IRS. Report the corrected amount on your return. Keep both the original and corrected forms for your records.

Can I deduct interest I paid on a loan from the interest I earned?

No. Interest you earned on a savings account is reported as income. Interest you paid on a loan (like a mortgage or student loan) may be deductible, but you report those deductions separately on your return. You do not net them against each other.

Is interest from a joint account split between owners for tax purposes?

It depends on how the account is titled and the bank's reporting practices. Some banks report all interest to one owner; others split it. Check your 1099-INT to see how the bank reported it. If the split is wrong, ask the bank to issue a corrected form showing the correct allocation.

Do I need to report interest if I am not filing a tax return?

If you are not required to file a return based on your income level, you do not file one. But if you do file a return for any reason (to claim a refund, for example), you must report all interest income on that return, even if it is below the filing threshold.