Yes, interest on savings accounts is taxable income
The interest your bank pays you on a savings account counts as ordinary income to the IRS. You owe federal income tax on every dollar of interest you earn, no matter how small the amount. Your bank will report this interest to you and to the IRS on a Form 1099-INT each January, and you report it on your tax return.
The tax you owe depends on your overall income and tax bracket for that year. If you earned $50 in interest and you're in the 22% tax bracket, you would owe roughly $11 in federal tax on that interest alone. Some states also tax savings account interest as part of state income tax, though a handful of states do not.
The IRS does not care whether the interest is small. Even $5 in interest is taxable. Your bank must report it to the IRS if it reaches $10 or more in a calendar year, but you are legally required to report all interest income, even amounts below $10.
Key Takeaways
- All savings account interest is taxable federal income and must be reported on your tax return, regardless of the amount.
- Your bank sends you a Form 1099-INT in January showing the interest paid in the previous year, and sends a copy to the IRS.
- The tax you owe on interest depends on your tax bracket, which is determined by your total income for the year.
- Some states tax savings interest as part of state income tax, while others do not — check your state's rules.
- Interest earned in a traditional IRA or 401(k) is not taxed until you withdraw the money, but interest in a regular savings account is taxed in the year it is earned.
When your bank reports interest to the IRS
Your bank generates a Form 1099-INT for each account that earned $10 or more in interest during the calendar year. The bank mails you a copy by January 31 of the following year and sends another copy directly to the IRS. If you had multiple savings accounts at different banks, you will receive a separate 1099-INT from each one.
Even if your interest falls below $10, you still owe tax on it. The $10 threshold only determines whether the bank is required to file the form with the IRS — it does not exempt you from reporting the income. If you earned $7 in interest and your bank did not send you a 1099-INT, you still need to report that $7 on your tax return.
The 1099-INT shows the interest earned during the calendar year, not the year you received the payment. Interest posted to your account in December 2024 is taxable in 2024, even if you do not withdraw it until 2025.
How to report savings interest on your tax return
You report savings account interest on Schedule 1 (Form 1040) under "Interest." If you received a 1099-INT, the amount should match what appears on that form. You add this interest income to your other income sources — wages, self-employment income, capital gains — to calculate your total taxable income for the year.
If you have interest income from multiple accounts or banks, you add all of it together and report the total on Schedule 1. You do not need to list each account separately unless you are itemizing deductions or have other reasons to track them.
If you use tax software, it will usually walk you through entering the 1099-INT information. If you file by hand or with a tax professional, bring all your 1099-INT forms with you so nothing is missed.
Tax-advantaged accounts where interest is not when ready taxed
Interest earned inside a traditional IRA or 401(k) is not taxed in the year it is earned. The interest compounds tax-free until you withdraw money from the account, at which point you owe income tax on the withdrawal. This is one of the main reasons these accounts exist — to let your savings grow without annual tax drag.
A Roth IRA works differently: interest is not taxed when earned, and it is not taxed when you withdraw it in retirement, as long as you follow the withdrawal rules. This makes Roth accounts especially valuable if you expect to be in a higher tax bracket later.
A 529 college savings plan also grows tax-free, and withdrawals for may have access to education expenses are not taxed. Interest in a regular savings account gets no such break — it is taxed every year.
State income tax on savings interest
Most states tax savings account interest as part of your state income tax return. The amount you owe depends on your state tax bracket, which varies by state. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all, so residents pay no state tax on savings interest.
Some states offer small exemptions or deductions for interest income, particularly for older adults or low-income households. New York, for example, allows a deduction for certain interest income if you meet income thresholds. Check your state's tax agency website or ask a tax professional whether your state has any breaks that explore to you.
When you file your state tax return, you typically report the same interest income you reported to the IRS. Your state uses your federal return as a starting point and makes adjustments from there.
Interest rates and how much tax you will owe
Higher interest rates mean more interest income and more tax. In recent years, savings account rates have ranged from near 0% to around 5% depending on the account type and bank. A high-yield savings account at 4.5% annual interest on a $10,000 balance would earn roughly $450 per year. If you are in the 24% federal tax bracket, you would owe about $108 in federal tax on that interest.
The relationship is straightforward: interest earned × your tax bracket = federal tax owed. Your tax bracket depends on your total income, filing status, and deductions. If you earn a large amount of interest in a single year — for example, from a recent inheritance or bonus — it could push you into a higher tax bracket and increase the tax rate on all your income.
This is why some people move money into tax-advantaged accounts when they can. The tax savings on interest can be meaningful, especially if you have a large balance sitting in a regular savings account.
What to do if you did not receive a 1099-INT
If you earned $10 or more in interest but your bank did not send you a 1099-INT by late January, contact the bank directly. Ask them to issue the form or provide written confirmation of the interest earned. Banks sometimes delay or make errors, and you need the documentation to file accurately.
If the bank confirms you earned interest but refuses to send a 1099-INT, you still report the interest on your tax return based on your own records — bank statements, deposit confirmations, or account history. The IRS expects you to report all income regardless of whether you receive a form.
If you earned less than $10 in interest and your bank did not send a 1099-INT, keep your own records showing the interest earned. You will still report it on your return, but you will not have a form to attach.
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 file a 1099-INT with the IRS. You are legally required to report all interest income on your tax return, even $1 or $5. Keep your bank statements as proof of what you earned.
Can I deduct the taxes I pay on savings interest?
No. Interest income is taxed as ordinary income, and you cannot deduct the tax you owe on it. You can only deduct investment expenses in limited situations, and savings account interest does not may have access to. The tax is straightforward part of your overall tax liability for the year.
What if I moved money between accounts during the year?
Each bank reports interest earned on accounts you held during the year. If you opened an account in June and closed it in September, the bank reports only the interest earned during those months. You report all 1099-INT forms you receive, and the total becomes your taxable interest income.
Does interest earned in a joint account get split for tax purposes?
The bank reports the full interest amount on a 1099-INT, but how you report it depends on who owns the account. If both owners contributed equally and own it jointly, you may each report half the interest. If one person owns it, that person reports all of it. Consult a tax professional if you are unsure how to split it correctly.
Is interest taxed differently if I reinvest it instead of withdrawing it?
No. Interest is taxed in the year it is earned, whether you withdraw it, spend it, or leave it in the account to compound. The IRS taxes it based on when it was credited to your account, not when you use the money.