Yes, you pay taxes on the interest your savings account earns, but not on the money you deposit
The money you put into your savings account is yours — you already paid taxes on it when you earned it, so you do not pay taxes again when you deposit it. But the interest your bank pays you for keeping money there is new income, and the IRS treats it like any other income you receive. You will owe federal income tax on that interest, and possibly state income tax too, depending on where you live.
The amount of tax you owe depends on how much interest you earned and your overall income for the year. If you earned very little interest — say, a few dollars — you might owe nothing. If you earned more, you will report it on your tax return. Your bank will send you a form called a 1099-INT if you earned $10 or more in interest during the year, though you may owe taxes on smaller amounts too.
Key Takeaways
- You pay federal income tax on interest your savings account earns, but not on the money you deposit.
- Your bank sends you a 1099-INT form if you earned $10 or more in interest during the year.
- The tax rate on your interest depends on your total income and your tax bracket, not on a special savings rate.
- You report savings account interest on your federal tax return, and on your state return if your state has income tax.
How banks report your interest to the IRS
At the end of each year, your bank calculates how much interest it paid you. If that amount is $10 or more, the bank sends you a 1099-INT form and sends a copy to the IRS. This form shows the interest amount in Box 1. You use this form when you file your taxes.
If you earned less than $10 in interest, your bank may not send you a 1099-INT, but you still owe tax on that interest if you are required to file a tax return. Keep your bank statements so you can add up the interest yourself if you need to.
If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. Add all the interest amounts together when you report your income.
What tax rate applies to your savings interest
Savings account interest is taxed as ordinary income, meaning it is taxed at the same rate as your wages or salary. The rate depends on your total income for the year and your tax bracket — the IRS has different brackets for single filers, married couples filing jointly, and other filing statuses.
For example, if you are single and earned $35,000 in wages plus $50 in savings interest, that $50 is taxed at whatever rate applies to your $35,050 total income. You do not get a special lower rate just because it came from savings.
This is different from long-term capital gains, which have their own lower tax rates. Savings account interest does not may have access to for those rates.
When you might owe no tax on savings interest
If your total income is very low, you may not owe any federal income tax at all, even if you earned interest. The IRS sets a threshold called the standard deduction — if your income is below that amount, you do not owe federal tax. The standard deduction changes each year and depends on your age and filing status.
For example, if you are under 65 and single, and your only income was $100 in savings interest, you would likely owe no federal tax because that is well below the standard deduction. But if you earned $15,000 in wages plus $100 in interest, you would owe tax on the full $15,100.
Even if you do not owe tax, you may still need to file a return if you had taxes withheld from your paychecks — filing lets you get a refund of that money.
State income tax on savings 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 along with your federal return. A few states do not tax interest income at all, and some have special rules for certain types of savings accounts.
If you live in a state with income tax, your state tax return will ask for your interest income. You use the same 1099-INT form your bank sent you. If you live in a state with no income tax — such as Florida, Texas, or Wyoming — you do not file a state return and do not owe state tax on your interest.
How to report savings interest on your tax return
When you file your federal taxes, you report your savings interest on Schedule B (Interest and Ordinary Dividends) if you earned more than $1,500 in interest and dividends combined. If you earned $1,500 or less, you can report it directly on your Form 1040 without using Schedule B.
You will need your 1099-INT form in front of you. Enter the interest amount from Box 1 of the form into the appropriate line on your return. If you have multiple 1099-INT forms, add them all together and enter the total.
If you use tax software or work with a tax preparer, they will ask you for this information and enter it in the right place. If you file by hand, the instructions that come with Form 1040 explain where to put the number.
Frequently Asked Questions
Do I have to report interest if my bank did not send me a 1099-INT?
Yes, if you earned $10 or more in interest, you owe tax on it even if you did not receive a 1099-INT. The bank may not have sent one if you closed the account early or if there was a processing delay. Check your statements and report the interest you earned.
What if I earned interest at two different banks?
You will receive a separate 1099-INT from each bank. Add all the interest amounts together and report the total on your tax return. You do not file separate returns for each bank.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount your bank paid you. Fees are separate and generally cannot be deducted on your personal tax return, though there are rare exceptions for certain types of accounts.
Is the interest on a high-yield savings account taxed differently?
No. High-yield savings accounts pay more interest, but that interest is still taxed as ordinary income at your regular tax rate. You report it the same way on your return.
What if I moved money between savings accounts during the year?
Moving money between your own accounts does not create taxable income. Only the interest the bank paid you is taxable. Each bank reports the interest it paid on its own 1099-INT.