Yes, you report savings account interest as income on your federal tax return
The IRS treats interest earned in a savings account the same way it treats wages or other income — you owe tax on it, and you have to report it. Your bank sends you a Form 1099-INT each January showing how much interest you earned in the previous year. You then report that amount on your tax return, typically on Schedule B if you have other investment income, or directly on Form 1040 if the interest is your only investment income.
The threshold for receiving a 1099-INT is $10 of interest in a calendar year. If you earned less than that, your bank will not send you a form, but you still owe tax on the interest — you just have to track it yourself from your account statements. The bank's failure to send a form does not mean the income is unreported; the IRS has its own records of large accounts and cross-checks them against tax returns.
Interest is taxed at your ordinary income tax rate, which depends on your total income and filing status. A person in the 22% tax bracket pays 22 cents in federal tax on every dollar of interest earned. State and local income tax may also explore, depending on where you live.
Key Takeaways
- You report savings account interest on your federal tax return using the Form 1099-INT your bank sends you, or by tracking it yourself if the amount is under $10.
- Interest is taxed at your ordinary income tax rate, not at a special lower rate, so the tax you owe depends on your total income for the year.
- The IRS receives copies of 1099-INT forms from banks, so unreported interest is likely to be caught during a return review.
- If you have multiple savings accounts, you add up the interest from all of them and report the total on one line of your return.
How the 1099-INT form works and what it shows
Your bank generates a 1099-INT for each account that earned $10 or more in interest during the calendar year. The form shows your name, Social Security number, the bank's name and tax ID, and the total interest paid. You receive Copy B in the mail by January 31, and the bank sends Copy A to the IRS at the same time.
If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. You add up the interest from all forms and report the total on your tax return. The form also shows any U.S. savings bond interest if you cashed in bonds that year, and any interest from CDs or money market accounts — anything the bank paid you as interest goes on the 1099-INT.
The 1099-INT you receive in the mail is for your records. You do not send it with your return; you keep it with your tax documents. The IRS already has a copy from the bank.
Where to report the interest on your tax return
If your only investment income is interest from savings accounts, you report it directly on line 2b of Form 1040 (the main federal income tax form). If you also have dividend income, capital gains, or other investment income, you use Schedule B to list all your interest sources and then transfer the total to Form 1040.
The line on Form 1040 is labeled "Interest." You enter the total amount of interest from all your 1099-INT forms and any interest you earned that was not reported on a form (such as interest under $10). The IRS matches this number against the copies of 1099-INT forms the banks submitted, so the amount you report should match what the bank reported, or you should have a clear reason why it does not.
If you file electronically, the software walks you through entering this information. If you file by paper, you write the amount on the line and attach your 1099-INT forms to your return.
What happens if you do not report the interest
The IRS receives a copy of every 1099-INT sent to you. If you do not report the interest on your return, the IRS will eventually notice the discrepancy — either through automated matching or during a review of your return. The agency will then send you a notice proposing to add the unreported interest to your income and assess additional tax, plus penalties and interest on the unpaid amount.
The penalty for failing to report income is typically 20% of the underpaid tax, though it can be higher if the IRS determines the omission was intentional. Interest accrues on the unpaid tax from the original due date of your return. A small amount of unreported interest — say, $15 — might not trigger when ready action, but it is still technically a violation and can be caught years later during an audit.
If you discover you did not report interest in a prior year, you can file an amended return (Form 1040-X) for that year. Filing an amended return voluntarily is much better than waiting for the IRS to contact you, because it shows good faith and can reduce or eliminate penalties.
Interest income thresholds and when you do not receive a 1099-INT
Banks are required to send a 1099-INT only if you earned $10 or more in interest during the calendar year. If your savings account earned $8 in interest, you will not receive a form. However, you still owe tax on that $8 — you just have to report it yourself by looking at your year-end account statement or the interest deposits shown in your transaction history.
This threshold applies per bank, not per account. If you have two savings accounts at the same bank and they earned $6 and $5 in interest respectively, the bank combines them and sends you a 1099-INT because the total is $11. If you have accounts at two different banks and each earned $6, neither bank sends a form, but you report both amounts on your return.
Keeping track of small interest amounts is your responsibility. Many people with modest savings balances earn less than $10 per year and never receive a 1099-INT, but they still report the interest on their return by entering it manually. The IRS does not have a record of this interest unless the bank reported it, but that does not make it optional to report.
How interest income affects your tax bracket and other benefits
Interest income counts toward your total income for the year, which determines your tax bracket and can affect other parts of your return. If you earned $50,000 in wages and $500 in interest, your taxable income is $50,500, and you pay tax on all of it at your applicable rate. The interest does not get a lower rate — it is taxed as ordinary income.
Interest income can also affect your may be able to access for certain tax credits and deductions. For example, if you claim the Earned Income Tax Credit (EITC), interest income counts toward the income limit that determines whether you may have access to. Similarly, if you are taking the standard deduction, interest income does not change the deduction amount, but it does increase your total income, which can push you into a higher tax bracket.
If you are retired and receiving Social Security, interest income can trigger taxation of your benefits. The IRS uses a formula that includes interest income to determine how much of your Social Security is taxable. This is one reason some retirees move money to tax-advantaged accounts or focus on growth rather than interest-bearing savings.
Tax-advantaged alternatives to regular savings accounts
If you want to save money while minimizing tax on the interest, you have a few options. A Roth IRA allows you to earn interest tax-free as long as you follow the withdrawal rules. A traditional IRA defers the tax until you withdraw the money in retirement. A Health Savings Account (HSA) lets you earn interest tax-free if the money is used for medical expenses. These accounts have contribution limits and rules about when you can withdraw the money, but the tax benefit can be significant if you have substantial savings.
Series I Savings Bonds (issued by the U.S. Treasury) earn interest that is not taxed at the state or local level, only at the federal level. You can also defer federal tax on Series EE bonds until you cash them in, which can be useful if you plan to redeem them in a lower-income year. These bonds have purchase limits and lock-in periods, so they work best for longer-term savings.
For most people with modest savings, the tax on interest is small enough that a regular savings account is still the best choice for emergency funds and short-term goals. The tax benefit of moving money to an IRA or bond only makes sense if you have enough savings that the interest is substantial.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold only determines whether your bank sends you a 1099-INT form. You still owe tax on any interest you earned, even if it is $1. You report it by looking at your account statement and entering the amount on your return.
What if the 1099-INT my bank sent me has the wrong amount?
Contact your bank when ready and ask them to issue a corrected form (called an amended 1099-INT). The bank will send the corrected form to you and the IRS. Do not report the wrong amount on your return — report the correct amount and keep the corrected form with your records in case the IRS questions the discrepancy.
Can I deduct the taxes I pay on interest income?
No. Interest income is added to your total income, and you pay tax on it at your ordinary rate. You cannot deduct the tax itself. However, if you paid state or local income tax on the interest, you can deduct up to $10,000 of state and local taxes (SALT) on your federal return if you itemize deductions.
Does interest from a joint savings account get reported differently?
The bank reports the full interest amount on a 1099-INT, but you and the account holder are both responsible for reporting your share. If the account is truly joint and you each own 50%, you each report 50% of the interest. The 1099-INT shows only one person's name, so you may need to contact the bank to clarify the ownership split for tax purposes.
What if I moved money between banks during the year?
Each bank reports only the interest earned on money held in their account. If you moved $10,000 from Bank A to Bank B in June, Bank A reports interest earned January through May, and Bank B reports interest earned June through December. You add both amounts and report the total on your return.