Yes, savings account interest is income the IRS counts
Interest your bank pays you on a savings account is taxable income. This means you have to report it when you file your taxes, and it counts toward your total income for the year. The IRS treats it the same way it treats wages from a job — it is money you earned, even though you did not work for it.
Your bank will send you a form called a 1099-INT each January if you earned $10 or more in interest during the previous year. This form lists exactly how much interest you made. You use this number when you fill out your tax return. If you earned less than $10, the bank does not have to send the form, but you still have to report the interest if you file taxes.
The amount of interest matters because it affects your total income for the year. If you are trying to stay under an income limit for a government program, or if you are claiming dependents, or if you are figuring out your taxes, that interest counts. Even a small savings account earning a few dollars a year adds to your income total.
Key Takeaways
- Interest from a savings account is taxable income that you must report on your tax return.
- Your bank sends you a 1099-INT form in January if you earned $10 or more in interest during the previous year.
- Savings account interest counts toward your total income for the year, which can affect your taxes and may be able to access for some programs.
- You report this interest on your tax return even if the amount is small.
- Different types of savings accounts (regular savings, money market, certificates of deposit) all generate taxable interest.
How the IRS knows about your interest
Banks are required by law to report interest to the IRS. When you open a savings account, you provide your Social Security number or tax ID number. The bank uses this to track the interest you earn and report it to the IRS at the end of the year. You cannot hide it or choose not to report it — the IRS already has the information.
The 1099-INT form your bank sends you in January is a copy of what they also sent to the IRS. This form shows your name, your tax ID, the account number, and the exact amount of interest earned. When you file your taxes, you enter this amount on your return. If the number on your return does not match what the IRS received from the bank, the IRS will notice.
When interest affects your taxes
Whether you actually owe taxes on the interest depends on your total income for the year and your filing status. If your income is very low, you may not owe any tax at all — but you still have to report the interest. The IRS has a threshold called the standard deduction, and if your total income is below that number, you do not owe federal income tax.
The standard deduction changes each year and depends on whether you are single, married, over 65, or a dependent. For example, if you are a single person under 65 and your only income is $100 in savings account interest, you would not owe taxes because that is well below the standard deduction. But if you have a job and earn $35,000 a year, plus $500 in interest, that interest is added to your $35,000 and may push you into a higher tax bracket.
Interest also matters if you are claiming tax deductions or credits that have income limits. Some credits, like the Earned Income Tax Credit, phase out as your income rises. Even a small amount of interest can reduce the credit you receive.
Interest and government programs
If you are receiving benefits from a government program — such as Supplemental Security Income (SSI), food information, or housing support — the interest from your savings account may count toward your income limit. Each program has different rules about what counts as income and how much you can earn before your benefits are reduced or stopped.
Some programs count all interest. Others count only interest above a certain amount, or they count it differently depending on whether the account is in your name alone or jointly with someone else. If you are on a benefit program and you have a savings account, contact the program directly to ask how they treat interest income. Do not assume it does not count just because the amount is small.
How much interest you actually earn
The amount of interest a savings account generates depends on the interest rate the bank offers and how much money you have in the account. Banks set their own rates, and these rates change frequently. A savings account with $1,000 earning 0.01% interest per year would generate about 10 cents in interest — below the $10 threshold where the bank has to send you a 1099-INT form. The same account at a bank offering 4% interest would generate about $40 per year.
Online banks and credit unions often offer higher interest rates than traditional brick-and-mortar banks. If you are saving money and want to earn interest, comparing rates between banks can make a real difference over time. But remember: whatever interest you earn, you have to report it on your taxes.
What happens if you do not report interest
If you receive a 1099-INT and do not report the interest on your tax return, the IRS will eventually notice. The IRS matches the 1099-INT forms it receives from banks against the tax returns people file. If there is a mismatch, you will receive a letter asking you to explain or pay the tax you owe, plus penalties and interest.
The penalty for not reporting income is usually 20% of the unpaid tax, plus interest that compounds daily. If the amount is small — say, $50 in interest you forgot to report — the penalty might be $10 plus interest. But if you intentionally hide income, the IRS can pursue more serious penalties. It is much simpler to report the interest when you file your taxes.
Frequently Asked Questions
Do I have to file taxes if I only earned interest and no other income?
It depends on how much interest you earned and your age. If you earned less than the standard deduction for your filing status, you do not owe taxes, but you may still want to file if you paid taxes that were withheld from other income. Contact a tax preparer or the IRS directly for your specific situation.
What if my interest is less than $10?
The bank does not have to send you a 1099-INT form, but you still have to report the interest on your tax return if you file. Keep track of your interest yourself by checking your account statements or logging into your online banking.
Does interest from a joint savings account count as my income?
Usually, each owner of a joint account reports their share of the interest. If you and another person own the account equally, you each report half. The bank may send separate 1099-INT forms to each owner, or one form to the primary account holder. Ask your bank how they handle it for your account.
Can I avoid reporting interest by keeping my savings account balance low?
No. Whatever interest the bank pays you, you have to report it. The bank will report it to the IRS, and you have to match that on your tax return. There is no way to legally avoid reporting interest income.
Does interest from a certificate of deposit count as income?
Yes. Certificates of deposit (CDs) earn interest just like savings accounts, and that interest is taxable income. You will receive a 1099-INT if you earned $10 or more, and you report it the same way you report savings account interest.