You owe federal income tax on interest your savings account earns, but not on the money you deposit

The money you put into a savings account is yours — you do not pay tax on it. But the interest the bank pays you counts as income, and you report it on your federal tax return. Most savings accounts earn so little interest that you will owe nothing, because the standard deduction covers it. If you earn more than the threshold for your filing status, you owe tax on the amount above it.

Your bank sends you a form called a 1099-INT each January if you earned $10 or more in interest during the year. You use that form to report the interest on your tax return. Some states also tax interest income, though many do not. The amount you owe depends on your total income and your tax bracket, not on the size of your account.

Key Takeaways

  • Interest earned in a savings account is taxable income at the federal level; the money you deposit is not.
  • You report savings account interest on your tax return using the 1099-INT form your bank sends you in January.
  • If your interest income is below the standard deduction for your filing status, you owe no federal tax.
  • Some states tax savings account interest and some do not; check your state's rules if you live in a state with income tax.
  • High-yield savings accounts earn more interest than traditional accounts, which means higher tax liability if you earn above the threshold.

How the 1099-INT form works and when you receive it

Your bank is required to send you a 1099-INT if you earned $10 or more in interest during the calendar year. The form arrives by January 31 and shows the total interest paid to you. You receive one copy; the bank sends a copy to the IRS as well. If you have accounts at multiple banks, you will receive a separate 1099-INT from each one.

If you earned less than $10 in interest, your bank does not send a 1099-INT, but you still owe tax on that interest if your total income exceeds the standard deduction. You can find the interest amount in your account statements or by logging into your online banking portal. Add up all interest from all accounts and report the total on your tax return, even if no 1099-INT was issued.

The 1099-INT shows interest only — it does not include deposits, withdrawals, or transfers. It also does not account for any tax withholding or credits you may be may have access to to. You use the form as a record to make sure you report the correct amount, but the form itself does not determine what you owe.

The standard deduction and when you actually owe tax

The standard deduction is the amount of income you can earn before you owe federal income tax. For 2024, the standard deduction is $14,600 if you file as single, $29,200 if you file as married filing jointly, and $21,900 if you file as head of household. These amounts change each year. If your total income — including wages, interest, and other sources — stays below your standard deduction, you owe no federal tax.

Most people with savings accounts earn far less than the standard deduction in interest, which is why they owe nothing. A savings account with $50,000 earning 4% annually generates $2,000 in interest. If that is your only income, you owe no federal tax because $2,000 is below the standard deduction. But if you also earn wages or have other income, you add the interest to that total and compare it to your standard deduction.

If your total income exceeds the standard deduction, you owe tax on the amount above it. The tax rate depends on your tax bracket, which is based on your total income and filing status. You do not owe tax on the interest alone — you owe tax on your total income above the standard deduction.

State income tax on savings account interest

Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes interest and dividends only, not wages). If you live in one of these states, you owe no state tax on savings account interest. If you live elsewhere, your state likely taxes interest income the same way the federal government does — as ordinary income.

Some states have a lower tax rate on interest and dividend income than on wages. A few states offer small exemptions for interest earned by residents over a certain age or with income below a threshold. Check your state's tax department website for the rules in your state. If you move during the year, you may owe tax to both your old state and your new state, depending on when you moved and each state's rules.

If you earn interest in a state where you do not live — for example, you have a high-yield savings account with an online bank headquartered in another state — you still owe tax to your state of residence, not to the state where the bank is located. Your state taxes you based on where you live, not where your money is held.

High-yield savings accounts and higher tax bills

A high-yield savings account earns significantly more interest than a traditional savings account at a bank. Traditional accounts often pay 0.01% annually; high-yield accounts pay 4% to 5% or more. This means you earn more interest, which is good for your savings — but it also means a larger amount to report and potentially a larger tax bill.

If you have $100,000 in a traditional savings account earning 0.01%, you earn $10 in interest annually. If you move that same $100,000 to a high-yield account earning 4.5%, you earn $4,500 in interest. You still owe tax only on the amount above your standard deduction, but the higher interest means you are more likely to cross that threshold. If your only income is that $4,500 in interest and you file as single, you owe tax on $4,500 minus $14,600, which is zero — but if you also earn wages, the interest adds to your wage income and may push you into a higher tax bracket.

This is not a reason to avoid high-yield accounts. Earning more interest and paying tax on it is better than earning less interest and paying less tax. But it is worth understanding that moving to a higher-yield account will increase the amount you report on your tax return.

Reporting interest on your tax return

You report savings account interest on Schedule B of Form 1040 if you earned more than $1,500 in interest during the year. If you earned $1,500 or less, you can report the interest directly on Form 1040 without using Schedule B. Either way, the interest goes into the "interest income" section of your return.

If you file using tax software, the software will ask you to enter your interest income and will place it in the correct location on your return. If you file by hand, you will need a copy of your 1099-INT forms and your account statements. Add up all interest from all sources and enter the total. The IRS matches your return against the 1099-INT copies the banks sent them, so make sure the amounts match.

If you earned interest but did not receive a 1099-INT because the amount was under $10, you still report it. Use your account statements to find the exact amount and report it on your return. The IRS may not have a record of it, but you are still required to report all income.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT your bank sends you. If you do not report the interest on your tax return, the IRS will notice the discrepancy. They may send you a notice asking you to file an amended return or pay the tax owed plus penalties and interest. The penalty for not reporting income is usually 20% of the unpaid tax, plus interest that compounds daily.

If the amount is small — say, $50 in interest you forgot to report — the IRS may not pursue it aggressively. But if you have a pattern of not reporting income, or if the amount is large, the IRS can assess penalties and may audit other parts of your return. It is simpler and cheaper to report the interest when you file.

If you discover you did not report interest in a prior year, you can file an amended return for that year using Form 1040-X. The sooner you do this, the lower the penalties and interest will be. The IRS has a statute of limitations of three years for most returns, but if you owe tax, they can go back further.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. Your bank does not send a 1099-INT for amounts under $10, but you still owe tax on the interest if your total income exceeds the standard deduction. Use your account statements to find the amount and report it on your return.

Can I deduct the taxes I pay on savings account interest?

No. Interest income is taxed as ordinary income, and you cannot deduct the tax you pay on it. You can deduct investment expenses in some cases, but not the tax itself.

What if I have a joint savings account with someone else?

The bank will issue a 1099-INT showing the total interest earned. If you and the other person own the account equally, you each report half the interest on your own tax return. If you own it in a different proportion, each person reports their share. You may need to contact the bank to request separate 1099-INTs showing each person's portion.

Does moving money between my own accounts count as income?

No. Transfers between your own accounts are not income. Only the interest the bank pays you is taxable. Deposits and withdrawals do not create tax liability.

What if my savings account is in a different country?

You still owe U.S. federal tax on the interest if you are a U.S. citizen or resident. You may also owe tax to the other country. You may be may have access to to a foreign tax credit to avoid paying tax twice. Consult a tax professional if you have accounts in multiple countries.