You owe federal income tax on savings account interest, with rare exceptions
Yes, you must report savings account interest as income on your federal tax return. The IRS treats interest as ordinary income, taxed at your regular income tax rate. The only exception is if your total interest for the year falls below the threshold your bank must report it — currently $10 of interest or less — though you still owe tax on it even if it is not reported to the IRS.
Your bank sends you a Form 1099-INT each January showing how much interest you earned in the previous year. This form goes to both you and the IRS. If you earned interest from multiple banks or accounts, you will receive a separate 1099-INT from each one, and you must add them all together on your tax return.
State and local taxes on savings interest vary. Some states do not tax interest income at all. Others tax it the same way the federal government does. A few states exempt interest earned on savings accounts but tax other types of interest. Your state tax return instructions will specify what applies where you live.
Key Takeaways
- Savings account interest counts as ordinary income and is taxed at your regular federal income tax rate, regardless of the amount.
- Your bank reports interest of $10 or more on Form 1099-INT, which the IRS receives, so underreporting is detected.
- You must add interest from all your accounts and banks together when you file your tax return.
- State and local tax treatment of savings interest ranges from no tax to full taxation, depending on where you live.
- 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 every year.
How the IRS knows about your interest income
Banks are required to report interest to the IRS using Form 1099-INT when you earn $10 or more in a calendar year. You receive a copy in the mail or electronically, usually by January 31. The IRS receives an identical copy at the same time.
If you earn less than $10 in interest, your bank may not send you a 1099-INT, but you still owe tax on that interest. The IRS does not know about it unless you report it, but failing to report it is underreporting income. If you have multiple accounts at different banks, each bank reports separately — a bank only knows about interest it paid you, not what other banks paid.
The 1099-INT shows the account number, the bank's name and tax ID, and the exact dollar amount of interest. If the form contains an error, contact your bank when ready and ask for a corrected form. The bank will send a corrected 1099-INT to you and the IRS.
What counts as taxable interest and what does not
Savings account interest, money market account interest, and certificate of deposit (CD) interest are all taxable. So is interest from bonds, bond funds, and any other investment that pays you interest. The source does not matter — taxable interest is taxable interest.
Interest earned inside a traditional IRA or 401(k) is not taxed in the year you earn it. You pay tax only when you withdraw the money in retirement. Interest earned in a Roth IRA is never taxed, as long as you follow the withdrawal rules. Interest in a regular savings account, by contrast, is taxed every single year, even if you do not touch the money.
Interest on certain government bonds — specifically, interest on Series EE and Series I savings bonds — is exempt from state and local tax but still subject to federal tax. Interest on municipal bonds issued by your own state is sometimes exempt from both federal and state tax, but the rules are complex and depend on the bond type and your state.
How much tax you actually owe on interest
Your tax rate on interest depends on your total income for the year and your filing status. Interest is added to all your other income — wages, self-employment income, capital gains — and taxed at your marginal rate, which is the highest tax bracket you fall into.
If you earned $50,000 in wages and $500 in interest, you owe tax on the full $50,500. That $500 in interest is taxed at whatever your top tax bracket is, not at a special interest rate. For 2024, if you are single and your total income is between $47,150 and $100,525, your marginal rate is 22 percent. If your income is between $11,600 and $47,150, your marginal rate is 12 percent.
The exact amount you owe depends on your specific situation — your filing status, whether you have dependents, whether you claim the standard deduction or itemize, and what other income you have. A tax calculator or tax software can show you the impact of interest income on your total tax bill.
When you receive a 1099-INT and what to do with it
Your bank mails or emails Form 1099-INT by January 31 of the year following the year you earned the interest. If you earned interest in 2024, you receive the form by January 31, 2025. Keep it with your tax documents.
When you file your tax return, you report the interest on Schedule 1 (Form 1040), line 8, under "Interest." If you use tax software, you enter the amount from your 1099-INT and the software places it in the correct location. If you file by hand, you write the total interest from all your 1099-INTs on that line.
If you earned interest from multiple banks, add all the amounts together and report the total on one line. You do not need to list each bank separately on your return, though you should keep all your 1099-INTs in case the IRS asks.
Interest from joint accounts and how it is taxed
If you own a savings account jointly with another person, the interest is split for tax purposes based on who owns what percentage of the account. If you and your spouse each own 50 percent, you each report 50 percent of the interest on your own tax return.
The bank does not always know the ownership split. If you and another person own an account jointly but the bank has only one Social Security number on file, the bank reports all the interest under that one number. You and the other owner must then figure out who owes tax on what portion and report it correctly on your own returns. If the split is not 50-50, you may need to file Form 8949 or attach a statement to your return explaining the split.
If you are married and file jointly, it does not matter which spouse's name is on the account — you report all household interest together on one return. If you file separately, each spouse reports only the interest from accounts in their name or their ownership share of joint accounts.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold is only when your bank must send you a 1099-INT. You still owe tax on interest below $10. If you earned $5 in interest and your bank did not send a form, you still report that $5 on your tax return.
What if my 1099-INT shows the wrong amount?
Contact your bank when ready and ask for a corrected form. The bank will issue a corrected 1099-INT and send it to both you and the IRS. Report the corrected amount on your tax return, not the wrong amount.
Can I deduct interest I paid on a loan from the interest I earned?
No. Interest you earned is income. Interest you paid on a personal loan or credit card is not deductible. Mortgage interest and student loan interest have their own deductions, but they are separate from interest income.
Is interest from a high-yield savings account taxed differently?
No. High-yield savings accounts pay more interest, but the interest is taxed the same way as interest from any other savings account — as ordinary income at your regular tax rate.
What if I moved money between banks during the year?
Each bank reports only the interest it paid you. If you had $10,000 in Bank A for six months earning $100 in interest, then moved it to Bank B for six months earning $120, you receive one 1099-INT from Bank A for $100 and one from Bank B for $120. You report both amounts, totaling $220, on your tax return.