Yes, you report 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 other income — you owe tax on it. Your bank will send you a form called a 1099-INT (Interest Income) by January 31 each year, listing all the interest you earned in that account during the previous year. You then report that amount on your tax return.

The threshold for receiving a 1099-INT varies by bank. Most banks send the form if you earned $10 or more in interest during the year, though some institutions use different cutoffs. Even if your bank does not send you a 1099-INT, you still owe tax on the interest — the form is just documentation. The IRS has its own copy from your bank, so they will know if you earned interest and did not report it.

Interest rates on savings accounts are low enough that many people earn less than $10 in a year, which is why you may never see a 1099-INT. But if you have multiple accounts or a higher balance, the interest can add up quickly, especially with recent rate increases.

Key Takeaways

  • You report savings account interest on your federal tax return as ordinary income, using the amount shown on your 1099-INT form or your own records if the interest was under the reporting threshold.
  • Your bank sends a 1099-INT by January 31 if you earned interest above their threshold (usually $10), but you owe tax on all interest regardless of whether you receive the form.
  • Interest income is taxed at your ordinary income tax rate, not at a special rate, so the tax you owe depends on your total income and filing status.
  • You report the interest on Schedule 1 (Form 1040) or directly on your return, depending on the tax software or form you use.
  • High-yield savings accounts and money market accounts generate more interest than traditional savings accounts, which means a larger tax bill on that income.

Where the interest amount comes from

Your bank calculates interest daily or monthly based on your account balance and the annual percentage yield (APY) they offer. That interest is either deposited into your account or credited to your balance. At the end of the year, your bank totals all the interest you earned and reports it to you and the IRS.

If you have multiple savings accounts at different banks, each bank sends its own 1099-INT. You add all the interest amounts together when you report on your tax return. Some people keep savings at a traditional bank, a high-yield savings account, and a money market account — each one generates a separate 1099-INT.

If you closed an account during the year, the bank still reports the interest you earned up to the closing date. The interest belongs to the year it was earned, not the year you withdraw the money.

How to report the interest on your return

The exact line where you report interest depends on which tax form you file. If you use Form 1040 (the main individual income tax form), you report interest income on Schedule 1, Part I, line 8. The total from Schedule 1 then transfers to your main Form 1040.

If you use tax software, the program walks you through entering interest income and places it in the correct location automatically. You enter the amount from your 1099-INT, and the software calculates how it affects your tax liability. Most software also handles multiple 1099-INT forms — you enter each one separately, and the software adds them together.

If you prepare your return by hand, you write the total interest on Schedule 1, line 8, then transfer that amount to Form 1040, line 8. The instructions that come with the forms show exactly where each number goes.

What tax rate applies to your interest income

Interest income is taxed at your ordinary income tax rate, which is the same rate that applies to your wages, salary, or self-employment income. It is not taxed at a special lower rate like some investment gains are.

Your ordinary income tax rate depends on your total income for the year and your filing status (single, married filing jointly, head of household, and so on). If you earn $50,000 in wages and $500 in interest, your total taxable income is $50,500, and all of it is taxed at the same rate. The interest does not get a break — it just adds to your income total.

For 2024, the federal tax brackets range from 10% to 37%, depending on your income level. If you are in the 22% bracket, your interest income is taxed at 22%. If you are in the 12% bracket, it is taxed at 12%. The interest pushes your total income higher, which can move you into a higher bracket if you are close to the edge.

State and local taxes on interest income

Most states also tax interest income at their ordinary income tax rate. If your state has an income tax, you report the same interest amount on your state return that you reported on your federal return. A few states — including Tennessee, New Hampshire, and South Dakota — do not tax interest income, so residents of those states owe federal tax but not state tax on savings interest.

Some cities and counties also impose local income taxes. If you live in a place with local income tax, you report interest there as well. The total tax you owe on interest is federal plus state plus local, depending on where you live.

Your bank does not withhold taxes from interest earnings the way an employer withholds from your paycheck. You are responsible for setting aside money to pay the tax when you file your return, or for adjusting your withholding if you have other income.

When you do not receive a 1099-INT

If your interest was below your bank's reporting threshold (often $10), you will not receive a 1099-INT. You are still required to report the interest on your tax return. You can find the exact amount in your account statements or by logging into your online banking portal and looking at the interest posted each month.

Keep your bank statements or read a year-end summary from your bank's website. This becomes your documentation if the IRS ever questions your return. The IRS knows how much interest you earned because banks report it to them, even if they did not send you a 1099-INT.

If you earned interest at a bank that went out of business or closed your account, contact the bank or check your records for the last statement showing interest posted. That amount is still taxable income for the year it was earned.

Interest from CDs, money market accounts, and other savings products

Certificates of deposit (CDs), money market accounts, and savings accounts all generate interest that is reported on a 1099-INT. The form does not distinguish between them — it just shows total interest from that institution. If you have a CD that matures and you roll it into a new CD, the interest from the first CD is reported for the year it was earned, not the year you reinvest it.

Some CDs pay interest at maturity rather than monthly or quarterly. That interest is still taxable in the year you earned it, even if you do not receive the money until the CD matures. If a CD matures in January 2025 but you bought it in 2024, the interest is taxed in 2024, not 2025.

High-yield savings accounts generate significantly more interest than traditional savings accounts, which means a larger amount to report. A $50,000 balance in a high-yield account earning 4.5% APY generates $2,250 in annual interest — all of which is taxable income.

Frequently Asked Questions

What if I earned interest but my bank did not send a 1099-INT?

You still report the interest on your tax return. Find the amount in your bank statements or account history. The IRS received a report from your bank, so they know the interest was earned even if the form was not sent to you because the amount was below the reporting threshold.

Do I have to pay estimated taxes on savings interest?

Only if your total tax liability for the year is high enough. Most people with savings interest as their only income do not owe estimated taxes — they pay when they file their return. If you have other income and expect to owe more than $1,000 in taxes, you may need to make quarterly estimated payments.

Can I deduct any expenses related to my savings account?

No. Interest income is reported as-is with no deductions. Account fees, overdraft charges, and other banking costs are not deductible against interest income. You report the gross interest your bank shows on the 1099-INT.

What happens if I move money between my own savings accounts?

Moving money between your own accounts is not income and is not taxed. Only the interest earned on the balance is taxable. If you transfer $10,000 from one account to another, that transfer itself generates no tax — only the interest that account earns is reported.

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

The bank reports the total interest on a 1099-INT to whoever is listed as the account owner or primary contact. If the account is truly joint with equal ownership, you and the other owner should split the interest income on your separate tax returns. Discuss this with the other account holder and keep documentation of how you divided it.