You must report savings account interest if you earned $10 or more in a year, but the bank reports it to the IRS first
The IRS requires you to report interest income from a savings account on your federal tax return if you earned $10 or more during the tax year. Your bank will send you a Form 1099-INT by January 31 showing exactly how much interest you earned. The bank also sends a copy to the IRS, so they already know the amount before you file.
If you earned less than $10 in interest, you do not have to report it, though you can if you want to. The $10 threshold is federal; some states have their own rules, so check your state's tax authority website if you live in a state with income tax.
Interest is taxed as ordinary income at your regular tax rate. A savings account earning 4% or 5% annually will generate more interest than it used to, which means more people now cross that $10 threshold. Even a modest balance of $2,000 to $3,000 can produce reportable interest over a year.
Key Takeaways
- You must report savings account interest of $10 or more per year on your federal tax return using the Form 1099-INT your bank sends you.
- Your bank reports the same interest amount to the IRS, so underreporting or omitting it creates a mismatch the IRS will notice.
- Interest income is taxed at your ordinary income tax rate, not at a special rate, so the tax owed depends on your overall income and filing status.
- If you earned less than $10 in interest, reporting is optional, but some people report it anyway to keep records complete.
How the IRS finds out about your interest income
Banks and credit unions are required by law to report interest paid to account holders. If you earned $10 or more in interest during the calendar year, your financial institution must issue a Form 1099-INT and send copies to both you and the IRS. This happens automatically; you do not have to ask for it.
The IRS matches the 1099-INT they receive from the bank against your tax return. If you report less interest than the bank reported, or if you do not report it at all, the IRS computer system flags the discrepancy. You may receive a notice asking you to explain the difference, or the IRS may simply adjust your return and send you a bill for the additional tax owed plus interest and penalties.
This matching system is why trying to hide interest income does not work. The bank knows the amount, the IRS knows the amount, and they compare notes before you even file.
Where to report interest on your tax return
Interest income goes on Schedule B (Interest and Ordinary Dividends) if you are filing Form 1040 or 1040-SR. You list each account separately if you have more than one, though many people simply add up all their interest and report the total. The instructions that come with Schedule B walk you through the process.
If you use tax software, the program will ask you for the interest amount and automatically place it in the correct spot. If you file by hand or with a tax preparer, bring your 1099-INT forms with you so the preparer can enter the amounts correctly.
Some people file Form 1040-EZ or use the standard deduction without itemizing. Interest still goes on Schedule B even if you use the standard deduction; the two are separate. You cannot skip reporting interest just because you take the standard deduction.
What happens if you do not receive a Form 1099-INT
If you earned $10 or more in interest but did not receive a 1099-INT by early February, contact your bank. Sometimes forms are mailed to an old address, or the bank may have made an error in your account information. The bank can issue a corrected form or provide the interest amount over the phone.
If the bank confirms you earned less than $10, you do not need a form and do not have to report the interest. If the bank confirms you earned $10 or more but never sent a form, you still have to report the interest on your return using the amount the bank gives you. Do not skip reporting just because the form did not arrive.
Keep your own records of interest earned. Many banks show interest deposits on your monthly statement, so you can add them up yourself as a backup if there is ever a question about what you earned.
How interest income affects your tax bill
Interest is added to your other income and taxed at your ordinary rate. If you are in the 12% tax bracket, interest is taxed at 12%. If you are in the 22% bracket, it is taxed at 22%. The rate depends on your total income for the year, not on the interest alone.
A person earning $50,000 in wages and $500 in interest pays tax on $50,500 total. A person earning $100,000 in wages and $500 in interest pays tax on $100,500 total. The interest pushes both into higher brackets slightly, which can increase the tax on the interest itself.
If you are retired and living on savings, interest income can affect whether you have to file at all, and it can also affect other benefits like Social Security taxation or Medicare premiums. Check the IRS filing requirements for your age and income level, or ask a tax preparer if you are unsure.
Interest from different types of savings accounts
All interest is reportable, regardless of the account type. A high-yield savings account, money market account, or certificate of deposit (CD) all generate interest that must be reported if it reaches $10. A regular passbook savings account at a traditional bank works the same way.
Some banks offer promotional interest rates for new accounts. That interest is still taxable and still reportable. If you opened a new account to take advantage of a high rate, expect to receive a 1099-INT if the interest earned during the year is $10 or more.
Interest from an Individual Retirement Account (IRA) or other retirement account is not reported on a 1099-INT. Retirement accounts have their own reporting rules, and interest inside them is not taxed until you withdraw money. Only interest from regular savings accounts, money market accounts, and similar non-retirement accounts appears on a 1099-INT.
State taxes on savings account interest
Most states that have an income tax also tax interest income. The rules are usually similar to federal rules: you report interest on your state return if you earned $10 or more. Some states have lower thresholds or different rules, so check your state's tax authority website.
A few states do not tax interest income at all. If you live in one of those states, you still have to file a federal return and report the interest, but you do not report it on your state return. Your state tax authority website will tell you whether interest is taxable in your state.
If you moved during the year, you may owe tax to both your old state and your new state for the portion of the year you lived in each. This is rare and usually only happens if you moved mid-year, but it is worth knowing about if you relocated.
Frequently Asked Questions
Do I have to report interest if I earned exactly $10?
Yes. The threshold is $10 or more, so $10 exactly is reportable. Your bank will send you a 1099-INT, and you must report it on your return. If you earned $9.99, you do not have to report it.
What if I have multiple savings accounts at different banks?
Each bank sends you a separate 1099-INT for the interest earned in that account. You add all the interest amounts together and report the total on Schedule B. You do not have to list each account separately unless you want to; most people just report the combined total.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount the bank paid you, not the net amount after fees. Savings account fees are not deductible on your personal tax return. Report what the 1099-INT says, which is the gross interest before any fees.
Does interest from a joint savings account get reported differently?
The bank reports the full interest amount on a 1099-INT to the account owner whose Social Security number is listed first on the account. If you own the account jointly, work out between yourselves who will report the interest, or ask the bank to split the reporting. The IRS expects the full amount to be reported by someone, so do not both report it in full.
What if the bank made a mistake on my 1099-INT?
Contact the bank immediately and ask them to issue a corrected form (Form 1099-INT with a "CORRECTED" box marked). The bank will send the corrected form to you and to the IRS. Report the corrected amount on your return. Keep both the original and corrected forms with your tax records.