Yes, you must report savings account interest as income on your federal tax return
Any interest your savings account earns counts as taxable income. The IRS requires you to report it on your tax return, even if the amount is small. Your bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year, and you use that form to report the income on your return.
The threshold for receiving a 1099-INT is $10 or more in interest for the year. If you earned less than $10, your bank may not send you a form, but you still owe tax on that interest if you have any tax filing requirement at all. The IRS knows about your account interest because your bank reports it directly to them.
Interest income is taxed at your ordinary income tax rate, which means it gets added to your other income and taxed according to your tax bracket. A small savings account earning $50 in interest will increase your taxable income by $50, potentially pushing you into a higher bracket or reducing a refund you might otherwise receive.
Key Takeaways
- You must report all savings account interest on your federal tax return, regardless of the amount.
- Your bank sends you a Form 1099-INT if you earned $10 or more in interest during the year.
- Interest income is taxed at your regular income tax rate and counts as ordinary income.
- Even interest under $10 must be reported if you file a tax return, and the IRS receives reports directly from your bank.
- High-yield savings accounts and money market accounts generate more interest, which means higher tax liability.
How the IRS finds out about your interest income
Your bank reports interest to the IRS automatically through Form 1099-INT. The bank sends a copy to you and a copy to the IRS, so the IRS already knows what you earned before you file your return. If you don't report the interest on your tax return, the IRS will notice the mismatch between what you reported and what the bank reported.
This automatic reporting system means you cannot simply ignore small amounts of interest. Even if your bank doesn't send you a 1099-INT because the interest was under $10, you should still report it if you file a return. The IRS cross-checks all 1099 forms against tax returns, and discrepancies can trigger an audit or a notice asking you to explain the difference.
Where to report interest income on your tax return
If you file Form 1040 (the standard individual income tax return), you report interest income on Schedule 1, which is an attachment to Form 1040. The line for interest income is straightforward: you add up all the interest from all your accounts and enter the total.
If you use tax software, the program will ask you about interest income and automatically place it in the correct location. If you file by hand or work with a tax preparer, they will know where to put it. The key is to have your 1099-INT forms in front of you when you file, because the amounts on those forms must match what you report on your return.
If you have interest from multiple accounts at different banks, you add all of it together and report the total. You do not need to list each account separately on your return, though you should keep your 1099-INT forms for your records.
When interest income affects your tax refund or bill
Interest income can reduce a tax refund you were expecting or increase the amount you owe. If you had taxes withheld from paychecks during the year, those withholdings were calculated based on your wages alone. When you add interest income on top of that, your total taxable income goes up, which means you may have had too much withheld or not enough.
The impact depends on your tax bracket and how much interest you earned. Someone in the 12% tax bracket who earned $500 in interest will owe an additional $60 in federal tax on that interest. If you were expecting a $1,200 refund, that refund drops to $1,140. If you owed $500, you now owe $560.
High-yield savings accounts and money market accounts can generate significant interest, especially if you have a large balance. A $50,000 balance in a high-yield account earning 4% annually generates $2,000 in interest income, which is substantial enough to noticeably affect your tax bill or refund.
State income tax on savings interest
Most states that have an income tax also tax interest income the same way the federal government does. You report the same interest amount on your state return that you reported on your federal return. A few states do not tax interest income at all, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
If you live in a state with income tax, your state tax agency receives the same 1099-INT information that the IRS does. You cannot report interest to the IRS and then omit it from your state return. The amounts must match, and state tax software will usually pull the federal information automatically.
What to do if you don't receive a 1099-INT
If you earned less than $10 in interest, your bank is not required to send you a 1099-INT. You still owe tax on that interest, and you should report it on your return. Check your bank statements from December to see how much interest was credited to your account during the year, and add that amount to your return.
If you earned $10 or more and did not receive a 1099-INT by early February, contact your bank. The bank may have sent it to an old address, or there may be an error in the account information on file. Request a corrected form or a statement showing the interest earned. Do not file your return without this information, because the IRS will have received the bank's report and will expect to see it on your return.
If your bank made an error on the 1099-INT—for example, it shows interest you did not actually earn—ask the bank to issue a corrected form (marked as a correction). You then file an amended return with the corrected amount.
Interest from joint accounts and accounts held by minors
If you own a savings account jointly with another person, the bank reports the full interest amount to both account holders on separate 1099-INT forms. You and the joint owner are each responsible for reporting your share of the interest on your own tax returns. If you split the interest 50-50, you each report half the amount shown on your 1099-INT.
For accounts held in a child's name, the child is responsible for reporting the interest, not the parent. However, parents can claim the child as a dependent, which may affect the child's filing requirement. A minor with interest income may not have to file a return if the interest is below the standard deduction for that year, but this depends on whether the child has other income and the specific rules for dependents.
Frequently Asked Questions
What if I earned less than $10 in interest—do I still have to report it?
Yes. The $10 threshold only determines whether your bank sends you a 1099-INT form. You must report all interest income on your tax return if you file one. Check your bank statements to find the exact amount and include it on your return.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount that your bank shows on the 1099-INT. Fees are not deductible against interest income on your individual return. You report interest as income and fees as a separate expense, if they may have access to as deductible at all (most do not for individuals).
Does interest from a money market account get reported the same way as savings account interest?
Yes. Money market accounts, certificates of deposit (CDs), and other deposit accounts all generate interest that is reported on Form 1099-INT and must be included on your tax return. The reporting process is identical to savings account interest.
What happens if the 1099-INT amount doesn't match my bank statements?
Contact your bank immediately. The 1099-INT should match the interest credited to your account during the calendar year. If there is a discrepancy, ask the bank to investigate and issue a corrected form if necessary. Do not file your return until the amounts match.
If I move money between savings accounts, do I report interest from both accounts?
Yes. You report interest from every account you held during the year, regardless of when you opened or closed it. If you had interest from three different banks, you add all three amounts together and report the total on your return.