Report the interest your bank paid you on Form 1040, Schedule B
The IRS requires you to report all interest income, including interest from high yield savings accounts. Your bank will send you a Form 1099-INT by January 31 each year, listing the total interest you earned in the previous calendar year. You then transfer that amount to Schedule B (Interest and Ordinary Dividends), which attaches to your Form 1040 tax return.
If your total interest income from all sources is $1,500 or less, you can report it directly on Form 1040 without filing Schedule B—but the IRS still expects to see it. If you earned more than $1,500 in interest across all accounts, you must use Schedule B and list each account separately.
The interest is taxed as ordinary income at your regular tax rate, not at the lower capital gains rate. This means a high yield savings account earning 4% to 5% annually will increase your tax bill, even though the money never left your account.
Key Takeaways
- Your bank sends Form 1099-INT by January 31, showing all interest earned in the previous year.
- You report this interest on Schedule B and attach it to Form 1040, or report it directly on Form 1040 if total interest is $1,500 or less.
- Interest from high yield savings accounts is taxed as ordinary income at your full tax rate, not at a reduced rate.
- If the 1099-INT amount is wrong, contact your bank immediately; you can file an amended return if you already filed.
- Interest earned in a Roth IRA or traditional IRA does not appear on a 1099-INT and is not reported on your tax return.
When you receive Form 1099-INT and what it shows
Your bank mails or emails Form 1099-INT by January 31 of the year following the one in which you earned the interest. If you opened the account late in the year and earned less than $10 in interest, the bank may not send a 1099-INT—but you still owe tax on that interest if you file a return.
The form shows the account number, the bank's name and tax ID, and the total interest paid to you during the calendar year. Box 1 contains the interest amount you need to report. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one.
Keep the copy the bank sends you (usually Copy B) with your tax records. If you file electronically, you do not need to attach it to your return, but the IRS receives a copy directly from the bank, so the numbers must match.
How to enter the interest on your tax return
If your total interest from all sources is $1,500 or less, you can report it on line 2b of Form 1040 without filing Schedule B. Write the total amount there, and you are done with that part of your return.
If your total interest exceeds $1,500, you must complete Schedule B. List each account separately: the account holder's name, the account number (or the bank name if you do not have the number), and the interest amount from each 1099-INT. Add up all the interest and transfer the total to line 2b of Form 1040.
The interest is added to your other income for the year and taxed at your ordinary income rate. If you are in the 22% tax bracket and earned $500 in interest, you owe approximately $110 in federal tax on that interest alone (before any credits or deductions).
What to do if the 1099-INT amount is incorrect
If the interest shown on Form 1099-INT does not match your account records, contact your bank's customer service or the number listed on the form. Banks sometimes make errors in calculating interest or reporting the wrong account holder's income.
If the bank confirms the error and sends you a corrected Form 1099-INT (marked as a correction), use the corrected amount on your tax return. If you already filed your return with the wrong amount, you will need to file Form 1040-X (Amended U.S. Individual Income Tax Return) to correct it.
If the bank cannot resolve the discrepancy, document your own calculation and keep records of your account statements. If the IRS contacts you about the mismatch, you can show proof of the correct amount.
Interest in retirement accounts does not get reported
Interest earned inside a Roth IRA, traditional IRA, or 401(k) is not reported on your tax return, even though it accumulates in your account. The bank or plan administrator does not send a 1099-INT for retirement account interest because the tax treatment is different.
For traditional IRAs and 401(k)s, you pay tax on the money when you withdraw it in retirement, not when the interest is earned. For Roth IRAs, you pay no tax on the interest at all, as long as you follow the withdrawal rules.
If you have both a regular high yield savings account and a Roth IRA, only the interest from the regular account appears on a 1099-INT and gets reported on your tax return.
How interest affects your tax bracket and other deductions
Interest income counts as ordinary income and is added to your wages, self-employment income, and other sources. This can push you into a higher tax bracket, which means not only is the interest itself taxed, but it may also increase the tax rate on your other income.
Interest income can also affect your may be able to access for certain tax credits. For example, if you are close to the income limit for the Earned Income Tax Credit (EITC) or the Child Tax Credit, extra interest income might reduce or eliminate the credit. Check the income limits for any credits you claim before the year ends.
If you are over 65 or blind, you get an extra standard deduction, but interest income does not change that. Interest also does not may have access to for the standard deduction itself—it is simply added to your total income.
Strategies to minimize taxes on high yield savings interest
You cannot avoid reporting the interest, but you can reduce how much you earn. Keep only the emergency fund you actually need in a high yield savings account; move the rest to a money market fund, short-term Treasury bills, or other investments that may have different tax treatment.
If you are married and file jointly, consider which spouse's name the account is in. Interest is reported under the Social Security number of the account owner, so if one spouse is in a lower tax bracket, that spouse might own the account (though this requires careful planning and legal advice).
If you have significant interest income and other losses—such as capital losses from investments—you can use those losses to offset the interest income, reducing your taxable total. This requires filing Schedule D and understanding how loss carryforwards work.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
The bank does not send a 1099-INT for interest under $10, but you still owe tax on it if you file a return. Report it on your tax return even if you do not receive a form. The IRS does not have a minimum threshold for reporting interest income.
What if I moved money between banks mid-year and received two 1099-INTs?
Report both forms on Schedule B. Add up the interest from each 1099-INT and enter the total on line 2b of Form 1040. Each bank reports only the interest earned while your money was in their account, so the total of both forms is your actual interest income.
Can I deduct the taxes I pay on interest income?
No. Interest income is taxed, but you cannot deduct the tax itself. You can only deduct investment expenses if you itemize deductions and meet specific rules, and interest income does not may have access to as an investment expense.
What if my bank did not send a 1099-INT but I earned interest?
Contact the bank and ask them to issue one. If they refuse or say the amount was too small, report the interest on your tax return anyway using your own records. Keep bank statements showing the interest posted to your account as proof.
Does interest from a joint account get split between both owners on the tax return?
Not automatically. The bank reports the full interest amount under one Social Security number (usually the primary account holder's). If both owners should claim part of the interest, you need to file an amended return or work with a tax professional to split it correctly.