You don't pay income tax on the money sitting in your checking account itself, but you do pay tax on the interest your bank pays you
The balance in your checking account is not taxable income. You earned that money before it went into the account, and you already paid taxes on it then. The IRS does not tax you again just because the money is there.
However, if your bank pays you interest on your checking account, that interest is taxable income in the year you earn it. Most checking accounts pay very little interest — sometimes zero — but some banks offer higher rates, especially on money market checking accounts. Any interest your bank credits to your account must be reported on your tax return.
The bank will send you a 1099-INT form (Interest Income) if you earned $10 or more in interest during the year. You report this amount on your federal tax return. Some states also tax interest income, so check your state's rules.
Key Takeaways
- The money you deposit and keep in your checking account is not taxable — you already paid tax on it when you earned it.
- Interest paid by your bank on a checking account is taxable income and must be reported on your tax return.
- Your bank sends a 1099-INT form if you earned $10 or more in interest during the tax year.
- Most standard checking accounts pay no interest, so most people have nothing to report from their checking account.
- Some states tax interest income in addition to federal tax, so your state tax return may require the same interest information.
When your bank sends you a 1099-INT form
Banks are required to send a 1099-INT to you and to the IRS if you earned $10 or more in interest during the calendar year. The bank mails this form by January 31 of the following year. If you earned less than $10, the bank does not send a form, but you still owe tax on the interest if you file a return.
The 1099-INT shows the interest amount in Box 1. This is the number you report on your tax return. If you have multiple checking or savings accounts, you may receive multiple 1099-INT forms — one from each bank or financial institution.
Keep your 1099-INT forms with your tax records. You do not attach them to your return when you file, but you need them to fill in the correct amount on your return, and the IRS has a copy.
How interest income affects your tax bill
Interest income is added to your other income for the year. Depending on your total income and filing status, this may push you into a higher tax bracket or reduce tax deductions you would otherwise receive. For most people with checking accounts, the interest is so small that it makes almost no difference to their tax bill.
If you earned $50 in interest and you are in the 22% federal tax bracket, you would owe roughly $11 in federal tax on that interest. Your state tax, if any, would be additional. The exact amount depends on your total income and your state.
Some people with very large balances or accounts at high-yield banks may earn hundreds or thousands of dollars in interest per year. For these accounts, the tax impact is more significant and worth tracking carefully.
Reporting interest on your tax return
On the federal return, interest income goes on Schedule 1 (Form 1040), line 8b. If you use tax software, it will ask you for this information and place it in the correct spot. If you file by hand, you enter the total interest from all your 1099-INT forms on this line.
If you did not receive a 1099-INT but earned interest (because it was under $10 or the bank made an error), you still report it. Write "Interest income" and the amount on Schedule 1.
For state taxes, most states have a similar line for interest income on their income tax forms. Check your state's instructions or ask a tax preparer if you are unsure where to report it.
The difference between interest and deposits
It is important to understand that deposits into your checking account are not income and are not taxable. If you deposit your paycheck, a refund, a gift, or money from selling something, none of that is new taxable income — you already paid tax on your paycheck, the refund is a return of your own money, gifts are not taxable to you, and sales income was already reported when you filed.
Only the interest that the bank pays you for keeping money there is taxable. The principal — the money you put in — is yours and was taxed when you earned it.
This is why most people with checking accounts do not have to worry about taxes on their account. They earn no interest, so there is nothing to report.
High-yield checking accounts and tax planning
Some banks offer high-yield checking accounts that pay 4% to 5% annual interest or higher. If you keep $10,000 in such an account, you might earn $400 to $500 per year in interest. That interest is fully taxable.
If you are considering moving money to a high-yield account, factor in the tax cost. You keep more of the interest than you would in a savings account (because checking accounts are often less regulated), but you still owe tax on all of it. Some people use high-yield savings accounts instead, which often pay the same rate but are marketed differently — the tax treatment is identical.
If you earn a large amount of interest, you may want to set aside money for taxes or make estimated tax payments during the year. Talk to a tax preparer if your interest income is substantial.
What to do if you don't receive a 1099-INT
If you earned $10 or more in interest and your bank did not send you a 1099-INT by early February, contact the bank and ask for it. Provide your correct address and tax ID (Social Security number or EIN). The bank may have sent it to an old address or have incorrect information on file.
If the bank confirms it sent the form but you never received it, ask for a duplicate. Keep a record of your request in case the IRS later questions your return.
If you earned less than $10 in interest, you will not receive a 1099-INT, but you still report the interest on your return if you file one. The IRS expects you to track and report all income, even small amounts.
Frequently Asked Questions
Do I have to file a tax return if my only income is interest from my checking account?
It depends on your total income and filing status. If interest is your only income and it is below the standard deduction for your situation, you do not have to file. However, if you have other income (wages, self-employment, etc.), you must file and report the interest. Use the IRS filing requirements tool on IRS.gov to determine whether you must file.
What if I earned interest but my bank didn't send a 1099-INT?
If you earned less than $10, the bank is not required to send a form, but you still report the interest on your return. If you earned $10 or more and did not receive a form, contact your bank for a duplicate. You can also report the interest based on your own records — the amount you see on your monthly statements.
Is interest from a checking account taxed differently than interest from a savings account?
No. Both are reported on a 1099-INT and taxed as ordinary income at your regular tax rate. The only difference is the interest rate the bank pays — checking accounts typically pay less, but the tax treatment is the same.
Can I deduct fees my bank charges against the interest I earned?
No. You report the full interest amount on your return. Bank fees are not deductible on your personal tax return (they may be deductible if you are self-employed and the account is for business, but that is a different situation).
Do I need to report interest if I am not filing a tax return?
If you are not required to file a return, you do not report the interest. However, if you are required to file and you have interest income, you must report it, even if it is a small amount.