The short answer: almost none, unless you're under 65 and earn very little
Savings account interest is taxable income to the IRS. There is no threshold amount that stays tax-free — you owe federal income tax on every dollar of interest your bank pays you, no matter how small. The only exception is if your total income falls below the standard deduction for your filing status, which means you don't file taxes at all. For 2024, that threshold is $14,600 for a single filer under 65, and $29,200 for married filing jointly under 65.
Some states don't tax interest income at all — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. But federal tax still applies everywhere. If you live in a state with income tax, you'll owe both federal and state tax on your savings interest.
The only savings vehicles that produce tax-free interest are Roth IRAs and Roth 401(k)s, which are retirement accounts with contribution limits and withdrawal rules, not regular savings accounts. Municipal bonds also produce tax-free federal interest, but they're not savings accounts.
Key Takeaways
- All savings account interest is taxable federal income; there is no tax-free threshold unless your total income is below the standard deduction.
- If you earn less than $14,600 (single, under 65) or $29,200 (married filing jointly, under 65) in 2024, you may not owe federal tax on any income, including interest.
- Eight states have no income tax at all, but federal tax applies in every state.
- Roth retirement accounts produce tax-free interest, but they have contribution limits and early withdrawal penalties.
- Your bank will report interest over $10 on Form 1099-INT, which the IRS receives automatically.
When you don't have to pay tax on savings interest
You avoid tax on savings interest only if you don't file taxes at all — which happens when your total income is below the standard deduction. For 2024, a single person under 65 with no dependents can earn up to $14,600 before owing federal tax. A married couple filing jointly can earn up to $29,200. If your only income is $500 in savings interest and you're single, you don't file and owe nothing.
The standard deduction changes every year. The IRS adjusts it for inflation, so the 2025 threshold will be higher than 2024. You can find the current year's standard deduction on the IRS website or on the first page of Form 1040 instructions.
If you have other income — wages, self-employment, rental income — your savings interest stacks on top of it. A person earning $14,000 in wages and $500 in interest has $14,500 total income and still doesn't file. But someone earning $14,200 in wages plus $500 in interest has $14,700 and must file, paying tax on the full $500 interest.
How the IRS knows about your interest income
Your bank reports interest to the IRS on Form 1099-INT if you earned $10 or more in a calendar year. The bank sends you a copy and files one with the IRS automatically. The IRS matches what you report on your tax return to what the bank reported, so underreporting or omitting interest is caught quickly.
If you earned less than $10, the bank may not file a 1099-INT, but you still owe tax on that interest if your total income exceeds the standard deduction. The IRS expects you to report it from your bank statements.
Interest is reported in the year it's credited to your account, not when you withdraw it. If your bank credits interest on December 31, that interest is taxable in that year even if you don't touch the money until the following year.
Tax rates on savings interest
Savings interest is taxed as ordinary income, meaning it's added to your wages or other income and taxed at your marginal tax bracket. If you're in the 22% federal tax bracket, each dollar of interest costs you 22 cents in federal tax. If you're in the 12% bracket, it costs 12 cents.
Your marginal bracket depends on your total income and filing status. A single filer with $50,000 in wages is in the 22% bracket for 2024. If that person earns $1,000 in savings interest, they owe roughly $220 in federal tax on it (plus state tax if applicable).
High-yield savings accounts currently pay 4% to 5% APY, which sounds attractive until you calculate the tax. A $10,000 balance earning 4.5% generates $450 in interest per year. If you're in the 22% bracket, you owe $99 in federal tax, leaving you with $351 in after-tax interest.
States with no income tax on interest
Eight states impose no income tax on interest or any other income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe only federal tax on savings interest, not state tax.
Some other states tax interest but exempt certain types of income — for example, New Hampshire taxes interest but not wages. But most states with income tax tax interest the same way the federal government does: as ordinary income at your marginal rate.
If you move to a no-income-tax state, you don't retroactively avoid tax on interest earned while you lived elsewhere. Tax is owed in the state where you lived when the interest was credited.
Roth accounts as an alternative to regular savings
If you want savings interest that's truly tax-free, a Roth IRA or Roth 401(k) is the only option. Money you deposit into a Roth account grows tax-free, and you can withdraw it tax-free in retirement (after age 59½ and after the account has been open for at least five years).
The catch is contribution limits. For 2024, you can contribute up to $7,000 to a Roth IRA if you're under 50, or $8,000 if you're 50 or older. A Roth 401(k) has higher limits — $23,500 for those under 50 — but requires an employer plan. You can't just open one on your own.
Roth accounts also have income limits. If you earn too much, you can't contribute to a Roth IRA directly, though you may be able to use a "backdoor Roth" strategy. Roth 401(k)s have no income limits.
Withdrawing money before retirement triggers a 10% penalty plus income tax on the earnings (though not on your contributions). This makes Roth accounts unsuitable for emergency savings — they're meant for long-term retirement money.
Strategies to minimize tax on savings interest
You can't eliminate tax on regular savings account interest, but you can reduce it. The simplest approach is to keep savings in a high-yield account only as long as you need it. Once you have an emergency fund, move excess money into a Roth IRA or a taxable investment account where you can control when you realize gains.
If you're in a low tax bracket — retired, between jobs, or self-employed with low income — a year when your income is unusually low is a good time to move money into a taxable account and realize capital gains at a lower rate. This is called "tax-loss harvesting" or "bracket management," and it requires planning with a tax professional.
Municipal bonds produce tax-free federal interest and are sometimes tax-free at the state level too, but they require a larger upfront investment and carry different risks than savings accounts. They're not a substitute for emergency savings.
Frequently Asked Questions
Do I have to report savings interest if I earned less than $10?
Your bank won't file a 1099-INT, but you still owe tax on it if your total income exceeds the standard deduction. Report it from your bank statements on your tax return. If your total income is below the standard deduction, you don't file at all.
What if I earned interest in multiple accounts at different banks?
Add up all the interest from all accounts. Each bank reports its own interest on a separate 1099-INT, but the IRS totals them. You report the combined amount on your tax return.
Can I avoid tax by keeping my savings under a certain amount?
No. Tax is based on the interest you earn, not the balance. A $100,000 account earning 4% generates $4,000 in taxable interest. A $1,000 account earning 4% generates $40 in taxable interest. Both are taxable if your total income exceeds the standard deduction.
Is interest from a money market account taxed differently than a savings account?
No. Money market accounts, savings accounts, and certificates of deposit all produce ordinary income taxed at your marginal rate. The account type doesn't matter — only the interest amount.
What happens if I don't report savings interest on my tax return?
The IRS receives a copy of your 1099-INT from the bank and matches it to your return. Unreported interest is caught in an automated audit, and you'll owe the tax plus penalties and interest on the unpaid amount.