Interest from your checking account counts as income on your tax return

Any interest your bank pays you on a checking account balance is taxable income. The IRS treats it the same way it treats interest from savings accounts, money market accounts, or certificates of deposit. You report it on your federal tax return, and depending on your state, you may owe state income tax on it as well.

Your bank will send you a Form 1099-INT each January if you earned $10 or more in interest during the previous year. This form lists the total interest paid to you. You use this number when you file your taxes. Even if you don't receive a 1099-INT because your interest was below $10, you still owe tax on whatever you earned — you just have to report it yourself.

The amount of interest you earn on a checking account is usually small compared to other income sources, but it still matters to the IRS. How much tax you actually owe depends on your total income and your tax bracket.

Key Takeaways

  • Banks report checking account interest of $10 or more on Form 1099-INT, which you receive by January 31.
  • You report this interest as income on your federal tax return, typically on Schedule 1 (Form 1040).
  • The tax you owe depends on your overall income and tax bracket — the same interest amount creates different tax bills for different people.
  • Most checking accounts earn very little interest, so the tax impact is usually minimal unless you have a high-yield checking account or a very large balance.
  • Some states do not tax interest income, while others tax it at the same rate as federal income.

How the IRS treats checking account interest

The IRS classifies interest income as ordinary income, which means it is taxed at your regular income tax rate. This is different from capital gains (profit from selling investments), which may be taxed at a lower rate. Whether you earned $5 in interest or $500, the tax treatment is the same — it goes on your tax return as income.

You report this interest on Schedule 1 (Form 1040) under "Interest." If you have multiple accounts at different banks, you add up all the interest from all of them and report the total. The 1099-INT your bank sends you shows only that bank's interest, so if you have accounts at three banks, you will receive three separate 1099-INT forms and need to add them together.

When your bank sends you Form 1099-INT

Banks are required to send Form 1099-INT by January 31 of the year following the one in which you earned the interest. If you earned interest in 2024, you will receive the 1099-INT in January 2025. The form shows the account holder's name, the bank's name, and the total interest paid during that calendar year.

You should receive the form by mail or email, depending on how your bank communicates with you. If you do not receive it by early February, contact your bank directly. You need this form to file your taxes accurately, and the IRS also receives a copy, so they will know if you fail to report it.

If your interest was less than $10 for the year, your bank may not send you a 1099-INT. However, you still owe tax on that interest — you simply report it yourself on your tax return without waiting for the form.

How much tax you actually owe on the interest

The amount of tax depends on your tax bracket, which is determined by your total income for the year. If you are in the 22% tax bracket, $100 in interest costs you $22 in federal tax. If you are in the 12% bracket, the same $100 costs you $12. The interest itself does not change, but the tax bill does.

This is why two people with the same checking account interest may owe different amounts of tax. Someone earning $30,000 a year is in a lower bracket than someone earning $100,000 a year. The lower-income person pays less tax on the same interest amount.

Most checking accounts earn very little interest — often less than 1% per year. On a $5,000 balance at 0.01%, you would earn about 50 cents a year, which is below the $10 threshold and requires no 1099-INT. High-yield checking accounts pay more (sometimes 4% to 5%), so the interest is more substantial and the tax bill is larger.

State income tax on checking account interest

Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. However, a few states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state income tax on your checking account interest, though you still owe federal tax.

Some states offer limited exemptions. For example, Illinois does not tax interest income, and Mississippi exempts interest earned by residents over 59½. Check your state's tax agency website or your state tax form instructions to see how your state treats interest income.

If you moved during the year or earned interest in multiple states, you may need to report the interest to more than one state. This is rare for checking account interest, but it matters if you have accounts in different states.

What to do if you did not 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's customer service department. Provide your account number and ask them to send the form or provide the interest total. They can usually do this within a few business days.

If the bank cannot locate the form or claims you earned less than $10, ask for written confirmation of the interest amount. You need this to file your taxes correctly. If the bank refuses to help, you can contact the IRS, though this is rarely necessary — most banks send 1099-INT forms on time.

If you earned interest but the amount was below $10 and you did not receive a 1099-INT, you still report the interest on your tax return. Look at your bank statements from throughout the year, add up all the interest deposits, and report that total on Schedule 1.

Frequently Asked Questions

Do I have to report checking account interest if it is only a few dollars?

Yes. The IRS requires you to report all interest income, regardless of the amount. The $10 threshold only determines whether your bank sends you a 1099-INT — it does not determine whether you owe tax. If you earned $3 in interest, you report $3.

What if I have multiple checking accounts at different banks?

You receive a separate 1099-INT from each bank. Add up the interest from all of them and report the total on your tax return. The IRS receives copies of all your 1099-INT forms, so they will know if you miss any.

Can I deduct checking account fees from the interest I report?

No. You report the gross interest amount shown on the 1099-INT. Checking account fees are not deductible against interest income. However, if you have significant investment expenses, you may be able to deduct them under other rules — consult a tax professional about your specific situation.

Is interest from a joint checking account taxable to both owners?

The tax treatment depends on how the account is titled and your state's rules. Usually, the person whose Social Security number is listed on the account receives the 1099-INT and reports all the interest. If both owners' names are on the account, the bank may split the interest between you — ask your bank how they handle this.

What if my checking account interest changes during the year?

Your bank calculates the total interest earned during the entire calendar year and reports that amount on the 1099-INT. Interest rates may go up or down, but you report whatever you actually earned, not an average or estimate.