The IRS counts savings interest as income, and you report it on your tax return
Any interest your savings account earns is taxable income. The bank or credit union sends you a Form 1099-INT each January showing how much interest you earned the previous year. You then report that amount on your federal tax return. The IRS treats savings interest the same way it treats wages or other income — you owe tax on it at your ordinary income tax rate.
The amount of tax you actually pay depends on your total income and your tax bracket. If you earned $500 in savings interest and you are in the 22% tax bracket, you would owe roughly $110 in federal tax on that interest alone. State income tax may explore as well, depending on where you live. Some states tax savings interest; others do not.
You do not have to do anything to trigger this tax — it happens automatically once the interest hits your account. The bank reports it to the IRS whether you withdraw the money or leave it sitting there.
Key Takeaways
- Banks report savings interest to the IRS on Form 1099-INT, which you receive by January 31 each year.
- You owe federal income tax on all savings interest at your ordinary tax rate, which varies based on your total income and filing status.
- Some states tax savings interest and some do not, so your state tax bill depends on where you live.
- Interest earned in a calendar year is taxable in that same year, even if you do not withdraw the money until later.
- High-yield savings accounts earn more interest than traditional accounts, which means a larger tax bill on the interest income.
When the bank sends you Form 1099-INT
Your bank or credit union mails or makes available a Form 1099-INT by January 31 of the year following the one in which you earned the interest. If you earned $10 in interest during 2024, you will receive the 1099-INT in January 2025. The form shows the total interest paid to your account during that calendar year.
You need this form to file your tax return accurately. The IRS receives a copy as well, so if you report a different amount than what appears on the 1099-INT, the IRS will notice. If you earned less than $10 in interest, the bank may not be required to send a 1099-INT, but you still owe tax on whatever you earned — you would just report it based on your own records.
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 when you file your return.
How your tax bracket determines what you actually pay
The tax rate you pay on savings interest is your marginal tax rate — the rate that applies to your highest dollar of income. If you are single and earned $50,000 in wages plus $500 in savings interest, that $500 is taxed at whatever bracket your $50,500 total income falls into.
For 2024, federal tax brackets for single filers range from 10% on the first $11,600 of income up to 37% on income over $578,100. A married couple filing jointly has different brackets. The higher your total income, the higher the rate applied to your interest. Someone earning $30,000 a year might pay 12% federal tax on savings interest, while someone earning $150,000 might pay 24%.
This is why high-yield savings accounts, which pay 4% to 5% annual interest, create a larger tax bill than traditional savings accounts paying 0.01%. The interest itself is higher, so the tax on it is higher.
State income tax on savings interest varies widely
Whether you owe state tax on savings interest depends entirely on your state. Most states tax it as ordinary income. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax at all, so you owe nothing to the state. New Hampshire and Tennessee tax interest and dividends but not wages.
If you live in a state with income tax, you typically report the same interest amount on your state return that you reported to the IRS. Some states use the federal 1099-INT directly; others require you to report it separately. Check your state's tax authority website or your state tax form instructions to confirm the rules for your location.
State tax rates on interest are usually lower than federal rates but vary. New York taxes interest at rates up to 10.9%, while Colorado taxes it at up to 4.63%. If you are comparing savings accounts across state lines, the after-tax interest rate matters more than the before-tax rate.
The timing of when interest becomes taxable
Interest is taxable in the year it is credited to your account, not the year you withdraw it. If your savings account earns $200 in interest during 2024 and you leave it there until 2025, you still owe tax on that $200 in 2024. The IRS does not care whether you keep the money in the account or move it elsewhere.
This matters most with certificates of deposit (CDs) and other accounts where interest compounds or accrues over time. A CD that matures in January 2025 but accrued interest throughout 2024 will show that accrued interest on your 2024 1099-INT, even though you do not receive the money until 2025.
How to report savings interest on your tax return
On your federal return, you report savings interest on Schedule 1 (Form 1040), line 8b, under "Interest." If you use tax software, it will ask you to enter the amount from your 1099-INT, and the software will place it in the correct location. If you file by hand, you write the total interest from all your 1099-INT forms on that line.
The interest then flows into your total income, which determines your tax bracket and your overall tax bill. You do not calculate tax on the interest separately — it is straightforward added to your other income and taxed as part of your total.
If you earned interest in a joint account, the 1099-INT typically goes to the first account holder listed, but both owners are responsible for reporting their share. Married couples filing jointly usually report the full amount together, but if you file separately, you may need to split it based on your ownership percentage.
Tax-advantaged accounts that avoid or defer interest tax
Some account types let you earn interest without paying tax on it when ready. A Roth IRA or Roth 401(k) grows tax-free, and you owe no tax on the interest or any other earnings when you withdraw the money in retirement. A traditional IRA or 401(k) defers the tax — you do not pay tax on the interest now, but you will pay tax on the entire withdrawal amount when you take the money out.
A 529 college savings plan also grows tax-free as long as you use the money for may have access to education expenses. A Health Savings Account (HSA) works the same way for medical expenses.
These accounts have contribution limits and withdrawal rules, so they are not a solution for all your savings. But if you have money set aside for retirement or education, putting it in one of these accounts means the interest compounds without creating an annual tax bill.
Frequently Asked Questions
Do I have to report savings interest if I earned less than $10?
The bank may not send you a 1099-INT if you earned less than $10, but you still owe tax on whatever you earned. Report the interest based on your own records — check your account statements or year-end summary from the bank.
What if the 1099-INT the bank sent me is wrong?
Contact the bank when ready and ask them to issue a corrected 1099-INT. Once you receive it, file an amended return if you have already filed. The IRS will match your return to the corrected form they receive from the bank.
Can I deduct savings account fees from the interest income?
No. You report the gross interest on your return, not the net amount after fees. However, if you paid significant investment-related fees or advisory fees, you may be able to deduct them separately under certain circumstances — consult a tax professional about your specific situation.
Does interest in a money market account get taxed the same way as savings account interest?
Yes. Money market accounts are treated identically to savings accounts for tax purposes. The bank sends a 1099-INT, and you report the interest as ordinary income on your federal and state returns.
What happens if I move money between savings accounts — does that create taxable interest?
No. Moving money between your own accounts is not a taxable event. Only the actual interest earned on the balance is taxable, not transfers or deposits of your own money.