Interest from a savings account is taxable income, and you report it on your federal tax return each year

The money your bank pays you for keeping money in a savings account counts as income to the IRS. This is called interest income. Whether you owe tax on it depends on how much interest you earned and your overall income for the year, but the bank will track it and report it to both you and the IRS.

You do not have to do anything special to earn this interest — the bank calculates it and adds it to your account automatically. But you do have to report it when you file your taxes. The amount is usually small, especially in accounts earning less than 1% per year, but small amounts still count.

Key Takeaways

  • Banks report all interest earned on savings accounts to the IRS on a Form 1099-INT, and you receive a copy to use when filing taxes.
  • You must report interest income on your federal tax return even if the amount is small, though some states do not tax interest income at all.
  • Interest earned in a regular savings account is taxed as ordinary income at your normal tax rate, which varies based on your total income and filing status.
  • Certain accounts like Roth IRAs and 529 education savings plans have tax-free interest, but a standard savings account does not.

How banks report interest to the IRS

Your bank sends you a Form 1099-INT each January for any interest earned during the previous year. This form shows the exact amount of interest paid into your account. The bank also sends a copy directly to the IRS, so the agency knows how much interest you received.

You do not receive a 1099-INT if your interest was less than $10 for the year — but you still owe tax on it if you had any interest at all. The $10 threshold is just when the bank stops mailing the form. If you earned $5 in interest and did not receive a form, you still report that $5 on your tax return.

The 1099-INT arrives by January 31 each year. If you do not receive one by early February, contact your bank directly to request it. You will need this form or the interest amount to complete your tax return accurately.

What tax rate applies to savings account interest

Interest from a savings account is taxed as ordinary income, meaning it is added to your wages, self-employment income, and any other income you earned that year. Your total income then determines which tax bracket you fall into, and that bracket determines your tax rate.

If you earned $50,000 in wages and $200 in savings account interest, the IRS treats you as having earned $50,200 for the year. That extra $200 may push you into a higher tax bracket, though usually the effect is small. The tax you owe on that interest depends on your filing status and total income — there is no single rate that applies to everyone.

Some states do not tax interest income at all, while others tax it the same way the federal government does. Check your state's tax rules or speak with a tax preparer to understand what you owe at the state level.

When interest income is tax-free

Not all savings accounts generate taxable interest. Money held in a Roth IRA earns interest that is never taxed, as long as you follow the account rules and do not withdraw money before age 59½. Similarly, interest earned in a 529 education savings plan is tax-free when the money is used for may have access to education expenses.

A regular savings account at your bank, however, always generates taxable interest. High-yield savings accounts earn more interest than traditional savings accounts, which means you owe more tax on the earnings — but the interest is still taxable either way.

If you want to avoid paying tax on savings, a tax-advantaged account like a Roth IRA or 529 is the only option. Otherwise, any interest your bank pays you is income the IRS expects you to report.

How to report interest income on your tax return

When you file your federal tax return, you report interest income on Schedule B (if you have more than $1,500 in interest and dividends combined) or directly on Form 1040 (if you have less). The exact line depends on which form your tax preparer or software uses.

If you prepare your own taxes using software, the program will ask you to enter the amount from your 1099-INT. If you use a tax preparer, bring the 1099-INT with you so they can include it in your return. The amount goes into a specific box on your return, and the software or preparer calculates how much tax you owe on it.

You report the interest in the year you earned it, even if the bank did not send you the 1099-INT until January of the following year. Interest earned in 2024 goes on your 2024 tax return, which you file in early 2025.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT your bank sends to you. If you do not report the interest on your tax return, the IRS will notice the discrepancy when it matches your return against the 1099-INT. This can trigger an audit or a notice asking you to explain the missing income.

Failing to report interest income is considered tax evasion, even if the amount is small. The penalties include back taxes owed plus interest on those taxes, and potentially a penalty of 20% or more of the unpaid tax. It is far simpler and cheaper to report the interest, even if it is only a few dollars.

If you made an honest mistake and forgot to report interest in a previous year, you can file an amended return using Form 1040-X. It is better to correct the error yourself than to wait for the IRS to find it.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The $10 threshold only determines whether your bank mails you a 1099-INT form. You still owe tax on any interest earned, no matter how small. If you earned $5 in interest, report that $5 on your tax return.

Can I deduct savings account fees from the interest I earned?

No. You report the full interest amount as income. Fees your bank charges are not deductible against interest income on your personal tax return, though some business owners may be able to deduct fees related to business accounts.

What if I moved money between banks and earned interest at two different banks?

You will receive a separate 1099-INT from each bank showing the interest earned at that bank. Add all the interest amounts together and report the total on your tax return. The IRS will receive copies from both banks, so make sure your total matches.

Does interest earned in a money market account get taxed the same way?

Yes. Money market accounts, high-yield savings accounts, and traditional savings accounts all generate taxable interest reported on a 1099-INT. The tax treatment is identical regardless of the account type.

What if I closed my savings account partway through the year?

You still report all interest earned in that account for the full year. The 1099-INT will show the total interest from January through whenever you closed it. Report that amount on your tax return for that year.