Interest from your savings account is taxable income

The money your bank pays you for keeping money in a savings account counts as income on your federal tax return. The IRS treats it the same way it treats wages or freelance earnings — you owe income tax on it. Your bank will send you a form called a 1099-INT each January listing all the interest you earned the previous year, and you report that amount when you file taxes.

The tax you owe depends on your total income and your tax bracket. Someone in the 12% federal tax bracket pays roughly 12 cents in federal tax for every dollar of interest earned. Someone in the 22% bracket pays roughly 22 cents per dollar. You may also owe state income tax on the interest, depending on where you live — some states tax it, others do not.

The amount of interest itself is usually small enough that many people do not notice the tax hit. A savings account with $10,000 earning 4% annually generates $400 in interest. At a 12% federal tax rate, you would owe about $48 in federal tax on that $400. But the principle is the same whether the amount is $400 or $4,000.

Key Takeaways

  • Your bank reports all savings account interest to the IRS on a 1099-INT form, and you must report it as income on your tax return.
  • The federal tax rate on interest depends on your tax bracket, which ranges from 10% to 37% depending on your total income.
  • Many states also tax savings account interest, though some states do not — check your state's rules or ask your tax preparer.
  • Interest becomes taxable in the year you earn it, even if you do not withdraw the money or the bank has not yet sent you the 1099-INT form.

When the IRS considers interest taxable

Interest is taxable the moment your bank credits it to your account, not when you withdraw it or when you receive the 1099-INT form. If your savings account earned $50 in interest during 2024, you owe tax on that $50 in the 2024 tax year, even if you left the money in the account and do not see the 1099-INT until January 2025.

This matters because some people assume they can delay paying tax by not touching the money. That is not how it works. The IRS taxes the interest in the year it accrues, regardless of whether you spend it, reinvest it, or leave it sitting in the account.

How much interest triggers a 1099-INT

Your bank must send you a 1099-INT if you earned $10 or more in interest during the calendar year. If you earned less than $10, the bank is not required to send the form, but the interest is still taxable — you still need to report it on your return.

Some banks send 1099-INT forms for any interest earned, even amounts under $10. Others only send them when the threshold is met. Either way, you are responsible for reporting all interest income, whether or not you receive a form. If you have multiple savings accounts at different banks, each bank sends its own 1099-INT, and you add them all together on your tax return.

Federal tax brackets and what you actually owe

The tax rate on interest depends on your overall income and filing status. The IRS uses tax brackets — income ranges that correspond to a tax rate. In 2024, the federal brackets range from 10% for the lowest earners to 37% for the highest. Your interest income is added to your other income (wages, self-employment, investment gains) to determine which bracket you fall into.

Here is a simplified example: if you are single, earn $35,000 in wages, and earn $500 in savings account interest, your total taxable income is $35,500. That puts you in the 12% bracket for 2024, so you owe roughly $60 in federal tax on the $500 interest ($500 × 0.12). The exact amount depends on deductions and credits, which is why many people use tax software or a preparer.

Tax brackets change each year, and they vary by filing status (single, married filing jointly, head of household, and so on). The IRS publishes updated brackets in the fall for the following year.

State income tax on savings interest

Whether you owe state tax on savings interest depends on your state. Most states that have an income tax tax interest the same way the federal government does — as ordinary income at your state tax rate. A few states do not tax interest at all.

States with no income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming) do not tax savings interest. States with an income tax generally do tax it, though the rate varies. New York taxes interest at rates up to 6.85%. California taxes it at rates up to 13.3%. Some states offer small exemptions for seniors or low-income earners, but most working-age people pay state tax on interest.

If you live in a state with income tax and earned interest, you will report it on your state return as well as your federal return. Your state tax form will ask for the same 1099-INT information you reported to the IRS.

Interest from different account types

The tax treatment is the same whether the interest comes from a regular savings account, a money market account, or a certificate of deposit (CD). All of these are reported on a 1099-INT and taxed as ordinary income. The only difference is the amount of interest — a CD might pay 4.5% while a regular savings account pays 0.5%, but both are taxed the same way.

High-yield savings accounts (HYSAs) pay significantly more interest than traditional savings accounts — sometimes 4% or higher — which means they generate more taxable income. If you have $50,000 in an HYSA earning 4.5%, you earn $2,250 in interest annually. At a 22% federal tax rate, you owe roughly $495 in federal tax on that interest. This is one reason some people use tax-advantaged accounts like Roth IRAs or 529 plans for long-term savings, though those have contribution limits and other rules.

What to do when you receive your 1099-INT

Your bank will mail or email you a 1099-INT by January 31 of the year following the interest-earning year. The form shows the interest earned in box 1 (labeled "Interest Income"). You take that number and report it on your tax return — usually on Schedule B if you use the long form, or directly on the 1040 if you use tax software.

Keep your 1099-INT with your tax records. You do not send it to the IRS with your return, but you need it to fill out your return accurately, and the IRS has a copy so they can cross-check your reported income.

If you receive a 1099-INT and believe it is wrong — the amount is too high, or you do not recognize the account — contact your bank when ready. Banks sometimes make errors, and you want to correct them before you file. If you file with an incorrect amount and the IRS notices the discrepancy, they will contact you to reconcile 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 must send you a 1099-INT form. You are still required to report all interest income on your tax return, no matter how small. If you earned $3 in interest and did not receive a form, you still report that $3.

Can I deduct the tax I pay on savings interest?

No. Interest income is taxed as ordinary income, and there is no deduction for the tax itself. You cannot reduce your taxable interest by the amount of tax you owe. However, if you have investment losses or certain other deductions, those may offset some of your interest income.

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

You still owe tax on it and must report it on your return. If you have statements showing the interest earned, use those to calculate the amount. If the IRS later receives a 1099-INT from your bank that you did not report, they will contact you about the discrepancy.

Does moving money between my own savings accounts count as taxable interest?

No. Transferring money from one account to another is not income. Only the interest your bank pays you is taxable. If you move $5,000 from savings to checking, that $5,000 is not taxed. But any interest earned on that $5,000 before or after the transfer is taxable.

Is interest from a joint savings account taxed differently?

The interest itself is taxed the same way, but you and the other account holder may split the tax responsibility. If you and your spouse own a joint account and earned $1,000 in interest, you might each report $500 on your individual returns, or you might report it all on one joint return. The bank will send a single 1099-INT for the full amount, so you and the other owner need to decide how to split it based on your ownership agreement.