Yes, you report savings account interest as income on your tax return

The IRS treats interest earned in a savings account as taxable income. You owe federal income tax on that interest, and most states tax it too. The bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year. You then report that amount on your tax return.

The threshold for reporting is low. If you earned $10 or more in interest during the year, the bank must send you a 1099-INT. Even if you earned less than $10, you still owe tax on it — you just won't receive the form. The IRS expects you to report all interest income, regardless of the amount.

Interest is taxed at your ordinary income tax rate, which depends on your total income and filing status. A dollar of interest is treated the same as a dollar of wages for tax purposes.

Key Takeaways

  • Banks send Form 1099-INT for any interest of $10 or more, but you owe tax on all interest earned, even amounts under $10.
  • You report the interest amount on Schedule B (if you have other investment income) or directly on Form 1040, depending on your situation.
  • Interest is taxed as ordinary income at your regular tax rate, not at a special rate.
  • If the bank reports the wrong amount on your 1099-INT, contact them to request a corrected form before filing your return.

Where the interest goes on your tax return

If your total interest income for the year is $1,500 or less and you have no other investment income, you can report it directly on line 2b of Form 1040 (the main federal income tax form). You do not need to file Schedule B.

If your interest income exceeds $1,500, or if you also have dividend income, capital gains, or other investment income, you must file Schedule B and attach it to your Form 1040. Schedule B asks you to list each account and the interest earned. You then transfer the total to Form 1040.

Your tax software will walk you through this. When you enter the 1099-INT information, the software automatically puts the amount in the correct place on your return.

What happens if you don't report the interest

The IRS receives a copy of every 1099-INT the bank sends to you. If you do not report the interest on your return, the IRS will notice the mismatch. They may send you a notice asking why the amount on your return does not match the 1099-INT, or they may straightforward assess additional tax and interest.

Penalties for underreporting income start at 20 percent of the underpaid tax if the error is substantial. Interest accrues on the unpaid amount from the original due date. The longer the discrepancy goes unresolved, the more you owe.

If the underreporting looks intentional, the IRS can pursue fraud penalties, which are much steeper. It is far simpler to report the interest correctly the first time.

Correcting a wrong 1099-INT before you file

If the bank reports an incorrect interest amount on your 1099-INT, contact the bank's customer service or the department that issued the form. Ask them to issue a corrected 1099-INT, which will be marked as a correction. The bank must send the corrected form to both you and the IRS.

Do not file your return until you have the corrected form. If you file with the wrong amount and then receive a corrected form later, you will need to file an amended return, which takes longer and creates a paper trail the IRS will review.

If the bank is slow to correct it, you can file your return with the correct amount and attach a note explaining the discrepancy. Include a copy of your communication with the bank showing you reported the correct figure. This protects you if the IRS questions the difference.

Interest from different types of savings accounts

All interest is reportable, regardless of the account type. A regular savings account, money market account, certificate of deposit (CD), and high-yield savings account all generate 1099-INT forms if interest reaches $10. The rules are the same.

If you have multiple accounts at the same bank, the bank may combine the interest on a single 1099-INT. If you have accounts at different banks, each bank sends its own form. You report the total of all interest on your return.

Interest from joint accounts is reported on a single 1099-INT. If you and another person own the account jointly, the bank typically reports all the interest to one of you (usually the first-named owner). You and the other owner must decide how to split the income for tax purposes — usually 50/50 unless your ownership agreement says otherwise. Each person reports their share on their own return.

Tax-advantaged alternatives if interest income is high

If you have a large amount of savings and the interest is pushing you into a higher tax bracket, you have limited options to reduce the tax. You cannot avoid reporting the interest, but you can consider where to hold the money.

I Bonds (Series I Savings Bonds issued by the U.S. Treasury) defer interest reporting until you cash them in or they mature, which can be 30 years. This delays the tax but does not eliminate it. Roth IRAs and other retirement accounts allow savings to grow tax-free, but they have contribution limits and withdrawal restrictions.

For most people, the interest earned on a savings account is modest enough that the tax is not a major concern. If you are earning substantial interest, a tax professional can review your overall situation and suggest strategies that fit your circumstances.

Frequently Asked Questions

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

Yes. The bank only sends a 1099-INT if interest is $10 or more, but you owe tax on all interest earned. If you earned $5 in interest and received no form, you still report it on your return. The IRS tracks all accounts through other reporting channels.

What if I closed the account during the year?

The bank reports all interest earned in that account during the calendar year, even if you closed it in December. You report the full amount on your return for that year. Closing the account does not change the reporting requirement.

Can I deduct savings account fees against the interest?

No. You report the full interest amount as income. Fees you paid to the bank are not deductible against that interest. In rare cases, investment-related fees may be deductible as miscellaneous itemized deductions, but savings account maintenance fees are not.

What if the bank sends me a 1099-INT but I think the amount is wrong?

Contact the bank and ask them to verify the calculation. If they confirm an error, request a corrected 1099-INT. If you believe the bank is wrong but they stand by the figure, you can file your return with the amount you believe is correct and include a note explaining the discrepancy. Keep documentation of your communication with the bank.

Do I report interest from a savings account in another country?

Yes. The IRS taxes worldwide income, including interest from foreign accounts. You report it the same way as domestic interest. If the account is held in a foreign bank, you may also have additional reporting requirements under FATCA (Foreign Account Tax Compliance Act), depending on the account balance and your citizenship status.