Savings account interest counts as taxable income

The interest your bank pays you on a savings account is income, and you owe federal income tax on it. Your bank reports this interest to the IRS on a Form 1099-INT, and you report it on your tax return. The amount you owe depends on your total income and tax bracket — there is no separate "interest tax," just regular income tax applied to that money like any other earnings.

Most savings accounts earn so little interest that the tax bill is small. But if you have a high-yield savings account, a money market account, or a certificate of deposit (CD), the interest can be substantial enough to matter. The IRS does not care where the income comes from — only that you report it.

Key Takeaways

  • Your bank sends you a Form 1099-INT by January 31 each year, showing all interest earned in the previous year.
  • You report this interest on your federal tax return as ordinary income and pay tax at your regular income tax rate.
  • Some states also tax savings account interest, while others do not — check your state's rules.
  • Interest under $10 may not require a Form 1099-INT, but you still owe tax on it if you have other income.
  • If you earned interest but did not receive a 1099-INT, contact your bank to request one before filing.

How the IRS finds out about your interest income

Your bank automatically reports interest to the IRS using Form 1099-INT. The bank sends you a copy and sends another copy to the IRS. This happens every January for interest earned during the previous calendar year. You do not have to wait for the form to report the interest — you can look at your account statements and add it up yourself — but the IRS will cross-check your return against what the bank reported.

If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. Add all the interest together when you file. The form shows the interest amount in Box 1, and that is the number you need.

What tax rate applies to your interest income

Interest is taxed as ordinary income, meaning it uses your regular income tax bracket. If you are in the 22% tax bracket, you pay 22% on the interest. If you are in the 12% bracket, you pay 12%. The rate depends on your total income for the year, not just the interest.

This is different from long-term capital gains, which have their own lower tax rates. Interest does not get that break. A person earning $50,000 in salary plus $500 in interest pays tax on $50,500 at their regular rate.

You also owe self-employment tax (Social Security and Medicare tax) on interest if you are self-employed, but only if your net self-employment income is $400 or more. Most people with savings account interest do not hit that threshold.

State income tax on savings interest

Most states that have an income tax also tax savings account interest the same way the federal government does. A few states exempt interest income entirely or tax it at a lower rate. Check your state's tax authority website or ask a tax preparer about your state's rules.

Some states with no income tax (like Texas, Florida, and Nevada) do not tax interest at all. If you live in a state with income tax, assume your interest is taxable unless you find a specific exemption.

When interest is too small to report

If you earned less than $10 in interest during the year, your bank may not send you a Form 1099-INT. However, you still owe tax on that interest if your total income is above the filing threshold for your age and filing status. The IRS does not have a minimum interest amount that escapes taxation — only a minimum amount that requires a 1099-INT form.

If you earned interest but did not receive a 1099-INT, check your bank statements for the exact amount and report it on your return anyway. You can also contact your bank and request the form.

How to report interest on your tax return

If you file Form 1040 (the standard federal income tax form), you report interest income on Schedule 1, line 8. If you use tax software, it will ask you to enter the amount from your 1099-INT forms, and the software will put it in the right place. If you use a tax preparer, give them all your 1099-INT forms.

You do not need to attach the 1099-INT to your return, but keep a copy for your records. The IRS already has a copy from your bank.

What to do if your bank did not send a 1099-INT

If you earned interest but did not receive a Form 1099-INT by February 15, contact your bank directly. Ask them to issue the form or provide a statement showing the interest earned. Most banks can reissue forms quickly.

If you file your return before the form arrives, you can file an amended return (Form 1040-X) once you have the correct information. It is better to report the interest late than to omit it entirely, since the IRS will eventually see the bank's copy of the 1099-INT.

Frequently Asked Questions

Do I have to report interest if I earned less than $100?

Yes. There is no minimum amount of interest that escapes taxation. If you earned any interest and your total income is above the filing threshold for your situation, you must report it. The $10 threshold only determines whether your bank sends a 1099-INT form, not whether you owe tax.

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

No. You report the full interest amount on your tax return. You cannot subtract fees or other expenses related to the account. However, if you paid investment advisory fees or tax preparation fees, those may be deductible under other rules — ask a tax preparer about your specific situation.

What if I moved money between banks during the year?

Each bank reports only the interest earned on money held in their account. If you had $10,000 at Bank A for six months and moved it to Bank B for the other six months, Bank A reports interest for six months and Bank B reports interest for six months. Add both 1099-INT forms together when you file.

Is interest from a CD taxed differently than interest from a savings account?

No. CD interest is reported on Form 1099-INT just like savings account interest and taxed as ordinary income at your regular rate. The only difference is that CD interest is often higher, so your tax bill may be larger.

Do I owe tax on interest if I am claimed as a dependent?

Yes. Being claimed as a dependent does not exempt you from reporting interest income. However, your filing threshold may be lower than for independent filers. Check the IRS filing requirements for dependents based on your age and type of income.