The tax-free threshold depends on your filing status and whether you're claimed as a dependent
Bank interest is taxable income, but you only owe tax on it if your total income exceeds a certain amount. That threshold—called the standard deduction—varies by age and filing status. If you're under 65 and file as single, you can earn up to $14,600 in total income (including interest) in 2024 without owing federal income tax. If you're married filing jointly, both of you combined can earn up to $29,200. These numbers change each year.
The catch: if someone else claims you as a dependent on their tax return, your threshold is much lower. A dependent can usually earn only $1,300 in unearned income (which includes bank interest) before owing tax. This matters most for teenagers with savings accounts or adult children still claimed by parents.
State and local taxes are separate. Some states tax interest income at any amount; others don't tax it at all. You need to check your state's rules independently.
Key Takeaways
- Single filers under 65 can earn $14,600 in total income in 2024 before owing federal tax; married couples filing jointly can earn $29,200.
- If you're claimed as a dependent, you owe tax on bank interest above $1,300, regardless of your age.
- These thresholds increase by $1,850 if you're 65 or older (single) or $1,500 each if you're both 65+ (married filing jointly).
- State income tax rules vary widely—some states don't tax interest at all, while others tax every dollar.
- You report bank interest on Form 1040 even if you don't owe tax; the IRS receives a copy from your bank on Form 1099-INT.
How the standard deduction works for different household types
The standard deduction is the amount of income you can earn before you're required to file a federal tax return. It's not a tax credit or a deduction you claim—it's a built-in threshold. If your total income (wages, interest, dividends, self-employment income, everything) stays below it, you owe no federal income tax.
For 2024, here's what applies:
| Filing Status | Under 65 | Age 65+ |
|---|---|---|
| Single | $14,600 | $18,450 |
| Married filing jointly (both under 65) | $29,200 | — |
| Married filing jointly (one spouse 65+) | — | $30,700 |
| Married filing jointly (both 65+) | — | $32,200 |
| Head of household (under 65) | $21,900 | $27,350 |
These numbers apply to 2024 tax returns filed in 2025. The IRS adjusts them annually for inflation, so check the current year's threshold before you file.
The dependent trap: why being claimed costs you tax-free income
If another person claims you as a dependent—usually a parent, but sometimes a guardian or other relative—your tax-free threshold for unearned income drops to $1,300. Unearned income is money you didn't work for: interest, dividends, capital gains, rental income. Earned income (wages from a job) has a different rule, but bank interest is always unearned.
This means a 16-year-old with a $2,000 savings account earning $50 in interest owes tax on $48.50 of that interest ($50 minus the $1,300 threshold). Their parent's claim as a dependent overrides the standard deduction entirely for interest income.
The rule exists because the IRS assumes a dependent is supported by someone else and shouldn't get a full standard deduction. It's one reason some families move savings into a parent's name or a 529 education savings plan—both can reduce the tax hit on interest.
When you must file a return even if you owe no tax
You're required to file a federal return if your income exceeds the standard deduction for your situation. But there's another trigger: if you have more than $1,300 in unearned income (including bank interest), you must file even if your total income is below the threshold. This applies whether or not you're claimed as a dependent.
The IRS uses Form 1099-INT, which your bank sends to you and the IRS, to track interest income. If you don't file when you should, the IRS will know. Filing when you're not required costs nothing and can protect you—if you overpaid tax through withholding, you won't get a refund unless you file.
How interest income is reported to the IRS
Your bank reports all interest paid to your account on Form 1099-INT. They send one copy to you (usually by January 31) and another to the IRS. The form shows the account number, the interest amount, and sometimes other details like U.S. savings bond interest or early withdrawal penalties.
You report this interest on your Form 1040 (the main federal tax return) on the line for interest income. If you have multiple accounts, you add up all the interest and report the total. You don't attach the 1099-INT to your return, but you keep it for your records.
If you file electronically, tax software usually imports the 1099-INT data directly, so you don't have to type it in. If you file by paper, you enter the amount yourself.
State tax rules vary—some states don't tax interest at all
Federal tax is only part of the picture. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, but is phasing that out). If you live in one of these, you owe no state income tax on bank interest.
Other states tax interest as regular income, meaning you owe state tax on interest above your state's standard deduction. A few states have lower thresholds than the federal government. You need to check your state's tax agency website or a tax professional to know your state's rules—they don't align with federal thresholds.
If you moved during the year or have income from multiple states, the rules get more complex. Some states tax you on income earned while you lived there, even if you moved away. This is a case where a tax professional's help can save you money.
Strategies to reduce tax on savings account interest
If you're close to the tax threshold, a few moves can help. High-yield savings accounts pay more interest than traditional accounts, but the interest is still taxable—the benefit is that you earn more to begin with. Moving money into a Roth IRA (if you have earned income) shields the interest from tax entirely, though there are contribution limits and withdrawal rules.
For dependents, some families use 529 education savings plans, which grow tax-free if used for school expenses. Others keep savings in a parent's name to avoid triggering the dependent's lower threshold. Municipal bonds pay interest that's exempt from federal tax (and sometimes state tax), though they typically pay less interest than savings accounts and require a larger initial investment.
None of these are tax evasion—they're legal ways to structure savings. But they involve tradeoffs (less liquidity, contribution limits, restrictions on use). Talk to a tax professional before moving money around if you're trying to avoid a tax bill.
Frequently Asked Questions
Do I have to file a tax return if I only earned interest and it's below the standard deduction?
Not if your total income is below your standard deduction. But if you had more than $1,300 in unearned income (interest, dividends, capital gains), you must file even if you owe no tax. Filing is free and can get you a refund if tax was withheld.
What if I'm 65 and single—how much interest can I earn tax-free?
You can earn up to $18,450 in total income in 2024 before owing federal tax. That includes wages, interest, and any other income combined. State tax rules are separate and vary by location.
My parents claim me as a dependent. How much interest can I earn?
You can earn up to $1,300 in unearned income (interest, dividends, capital gains) before owing federal tax. Above that, you owe tax on the excess. This applies even if your total income is below the standard deduction for non-dependents.
Does interest from a savings account count differently than interest from a CD?
No. All interest income is taxed the same way, whether it comes from a savings account, money market account, certificate of deposit, or any other bank product. Your bank reports it all on Form 1099-INT.
If I live in a state with no income tax, do I still owe federal tax on interest?
Yes. Federal and state taxes are separate. Even if your state has no income tax, you still owe federal tax on interest above your federal standard deduction. The two don't offset each other.