The short answer: almost none, unless you're very low-income
Interest you earn on a savings account is taxable income to the IRS. There is no dollar amount of interest that is automatically tax-free. However, if your total income falls below a certain threshold, you may owe no federal income tax at all — which means your interest is effectively untaxed, even though it's still reportable.
The threshold depends on your age, filing status, and whether you have other income. For 2024, a single person under 65 with only interest income owes no federal tax if their income is below $14,600. A married couple filing jointly, both under 65, owes no tax if their combined income is below $29,200. These numbers change each year.
If your income exceeds these thresholds, every dollar of interest is taxable at your ordinary income tax rate — which ranges from 10% to 37% depending on your tax bracket. There is no special low rate for savings account interest, unlike capital gains or may have access to dividends.
Key Takeaways
- Savings account interest is always taxable income; the IRS does not exempt any amount based on the source.
- You owe no federal tax only if your total income is below the standard deduction for your filing status, which varies by age and marital status.
- Interest is taxed as ordinary income at your marginal tax rate, not at a preferential rate.
- Banks report interest over $10 on Form 1099-INT, and you must report it on your tax return even if you don't receive a form.
- State and local income taxes also apply to savings interest in most states, with no exemption.
How the standard deduction shields low-income savers
The standard deduction is the amount of income you can earn before you owe any federal income tax. If your total income — wages, interest, dividends, and other sources combined — stays below this number, you file a tax return but owe zero federal tax.
For the 2024 tax year, the standard deduction is $14,600 for a single filer under 65, $21,900 for a single filer 65 or older, $29,200 for married filing jointly (both under 65), and $23,200 for head of household under 65. These amounts increase slightly each year for inflation.
If you are retired and living on Social Security plus savings interest, you may fall below the standard deduction and owe no federal tax. The same applies if you are a student with a part-time job and some savings interest. But once your total income exceeds the threshold, every additional dollar — including interest — is taxed.
When you must report interest even if you owe no tax
Banks report interest to the IRS on Form 1099-INT if you earned $10 or more in interest during the year. You will receive a copy in January or February of the following year. You must report this interest on your federal tax return, even if you owe no tax and even if the amount is small.
If you earned less than $10, the bank is not required to send a 1099-INT, but you still must report the interest if you file a return. The IRS matches 1099 forms to tax returns, so underreporting or omitting interest can trigger an audit notice.
Reporting interest you earned does not automatically mean you owe tax. If your total income is below the standard deduction, you will owe zero federal tax even after reporting the interest. But you must file and report it accurately.
State and local taxes on savings interest
Federal tax is only part of the picture. Most states also tax interest income, and there is no state-level exemption based on income level or account type. New Hampshire and Tennessee tax only interest and dividends, not wages. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no state income tax at all.
If you live in a state with income tax, you will owe state tax on your savings interest at your state's rate, regardless of your federal tax situation. A few states offer small exemptions for seniors or low-income filers, but these are rare and vary widely. Check your state's tax authority website for details.
Local income taxes in cities like New York, Philadelphia, and Columbus also apply to interest income in most cases. These are separate from state tax and add another layer of taxation on top.
How to calculate your tax liability on interest
Start by adding up all your income for the year: wages, self-employment income, interest, dividends, capital gains, rental income, and any other sources. Compare this total to the standard deduction for your filing status and age.
If your total is below the standard deduction, you owe no federal income tax. If it exceeds the standard deduction, the amount over the threshold is taxable. Your interest income is taxed at your marginal tax rate — the rate that applies to your highest dollar of income.
For example, if you are single, earn $50,000 in wages, and earn $2,000 in interest, your total income is $52,000. The standard deduction for 2024 is $14,600, so your taxable income is $37,400. Your interest is taxed at whatever rate applies to that $37,400 — likely 12% for 2024. You would owe approximately $240 in federal tax on the $2,000 interest (plus state and local tax).
Tax-advantaged accounts that reduce interest taxation
Certain accounts allow interest to grow without annual taxation. A traditional IRA or 401(k) defers tax on interest until you withdraw the money in retirement. A Roth IRA or Roth 401(k) allows interest to grow completely tax-free if you follow withdrawal rules. A 529 education savings plan exempts interest from federal tax if used for may have access to education expenses.
These accounts have contribution limits and withdrawal rules, so they are not suitable for all savers. But if you are saving for retirement or education, moving money into a tax-advantaged account can eliminate or defer the tax on interest entirely.
A regular savings account has no tax advantage. Interest is taxed every year, regardless of whether you withdraw it. High-yield savings accounts pay more interest than traditional savings accounts, but the interest is still fully taxable.
What to do if you earned interest but owe no tax
File your tax return and report the interest on the appropriate line. If your total income is below the standard deduction, your tax software or preparer will calculate zero tax owed. You do not need to do anything special or file a different form.
Keep the 1099-INT from your bank with your tax records for at least three years. If the IRS questions your return, you will need to show that you reported the interest correctly.
If you earned very little interest and your income is well below the standard deduction, you may not be required to file a return at all. However, filing is often worth it because you may be due a refund of taxes withheld from wages or a refundable tax credit like the Earned Income Tax Credit. Check IRS.gov or use the IRS filing requirements tool to confirm whether you must file.
Frequently Asked Questions
Is interest from a savings account taxed differently than interest from a CD?
No. Both are taxed as ordinary income at your marginal rate. The only difference is that a CD may have a penalty for early withdrawal, which can reduce your net interest. The tax treatment is identical.
Do I have to pay tax on interest I don't withdraw?
Yes. Interest is taxable in the year it is earned, whether you withdraw it or leave it in the account. The bank reports it to the IRS, and you must report it on your tax return.
What if I earned less than $10 in interest and got no 1099-INT?
You still must report it if you file a tax return. The $10 threshold only determines whether the bank sends a form to you and the IRS — it does not determine whether you must report the interest. Report it on your return even without a 1099-INT.
Can I deduct savings account interest as a loss?
No. Interest income cannot be deducted or offset against other income. You report it as income, and that is final. Investment losses can sometimes offset gains, but savings interest has no deduction.
Does a minor's savings account interest get taxed differently?
A minor's interest is taxed to the minor, not the parent, unless the parent is the account owner. A minor has the same standard deduction as any other single filer under 65. If the minor's total income is below that threshold, they owe no federal tax. Some states have different rules for minors, so check your state's tax authority.