Yes, you must report savings account interest as income on your federal tax return

The IRS treats interest earned in a savings account the same way it treats wages or other income — you owe federal income tax on it. Your bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year. You then report that amount on your tax return, usually on Schedule 1 (Form 1040) or directly on the 1040 itself, depending on your filing method.

The amount of interest matters less than whether you earned any at all. Even $5 in interest must be reported. If your bank paid you interest and did not send you a 1099-INT, you still report it — the form is just documentation. If you do not report it and the IRS cross-references your bank records, you face penalties and back taxes plus interest.

State income tax rules vary. Some states tax savings interest the same way the federal government does; others exempt it entirely or tax it only above a certain threshold. Check your state's tax authority website or ask a tax preparer about your specific state.

Key Takeaways

  • All savings account interest must be reported on your federal tax return, no matter how small the amount.
  • Your bank sends Form 1099-INT by January 31 each year showing the interest you earned; use this to report on your return.
  • State income tax treatment of savings interest varies by state — some tax it, some do not, and some have thresholds.
  • If you earned interest but did not receive a 1099-INT, you still report it on your return to avoid penalties.

When your bank sends you Form 1099-INT

Banks must send Form 1099-INT to you and to the IRS if you earned $10 or more in interest during the calendar year. The form arrives by January 31 of the following year. It shows your name, Social Security number, the bank's name and ID number, and the total interest paid to you.

If you earned less than $10, your bank is not required to send a 1099-INT, but you still report the interest on your return. Keep your year-end bank statements as proof in case the IRS asks.

If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. Add all the interest amounts together when you report on your return.

Where to report interest on your tax return

On the federal return, interest income goes on Schedule 1 (Form 1040), Part I, Line 8b, labeled "Interest." If you file electronically, your tax software will walk you through entering this information. If you file by paper, write the total interest amount on that line.

The interest is added to your other income and taxed at your ordinary income tax rate — the same rate as your wages or salary. It is not taxed separately or at a special rate (unless you have investment income that triggers the net investment income tax, which is a different situation).

If you use a tax preparer or CPA, bring your 1099-INT forms with you. They will enter the amounts correctly and make sure nothing is missed.

State income tax on savings interest

State rules differ widely. Some states follow the federal rule and tax all interest income. Others do not tax interest at all — states like Illinois, Mississippi, and Tennessee exempt interest income from state tax entirely. Still others tax interest but allow a deduction or exemption up to a certain age or income level.

A few states tax interest at a different rate than other income, though this is less common. Check your state's department of revenue website or search "[your state] savings account interest tax" to find the rule for where you live.

If you live in a state with no income tax (like Florida, Texas, or Wyoming), you have no state tax to worry about, but you still owe federal tax on the interest.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT your bank sends to you. If you do not report the interest on your return, the IRS will likely catch the discrepancy through automated matching. You will receive a notice asking you to pay the tax owed, plus penalties and interest on the unpaid amount.

The penalty for not reporting income is typically 20% of the underpaid tax, though it can be lower if you have reasonable cause. The interest compounds daily on top of that. Even a small amount of unreported interest can trigger a notice that costs more to resolve than the tax itself.

If you made an honest mistake, you can amend your return using Form 1040-X. Filing an amended return before the IRS contacts you may reduce or eliminate penalties.

Interest from high-yield savings accounts and money market accounts

High-yield savings accounts and money market accounts pay more interest than traditional savings accounts, so you are more likely to receive a 1099-INT. The reporting rule is identical — all interest must be reported on your federal return, regardless of the account type or how often the interest compounds.

If you move money between accounts during the year, report the total interest from all accounts combined. Do not try to exclude interest from accounts you closed early or money you withdrew partway through the year — the bank reports what was actually paid to you, and that is what you report.

Some people open high-yield accounts specifically to earn more interest, which is fine, but be aware that the higher interest means a higher tax bill. Factor the tax liability into your planning if you are moving a large sum.

Interest from joint accounts and accounts held in trust

If you own a savings account jointly with another person, the bank reports the full interest amount on a single 1099-INT. You and the co-owner must decide how to split the income for tax purposes — usually 50/50, but it depends on your ownership agreement and state law.

Each person reports their share on their own tax return. If you disagree on the split, document your agreement in writing. The IRS may contact you if the amounts do not match what the bank reported.

For accounts held in trust (such as a custodial account for a minor), the trustee or account owner reports the interest. If the account is in a child's name, the interest may be taxable to the child, though special rules (the "kiddie tax") apply if the child is under 24 and has unearned income above a threshold. Consult a tax preparer if you are managing a trust account.

Frequently Asked Questions

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

Yes. Your bank only has to send a 1099-INT if you earned $10 or more, but you must report all interest on your return, even $1. Keep your bank statements as proof if you do not receive a form.

What if I earned interest but my bank did not send a 1099-INT?

Report the interest anyway. Contact your bank to ask why the form was not sent — it may have been mailed to an old address, or the bank may have made an error. You can request a corrected form or a written statement of the interest paid.

Can I deduct the taxes I pay on savings interest?

No. Interest income is taxed, but you cannot deduct the tax itself. You can deduct investment expenses (like fees paid to a financial advisor) if they exceed 2% of your adjusted gross income, but this is rare and has strict limits.

Does interest from a CD count as savings account interest?

Yes. Certificates of deposit (CDs) are reported the same way — your bank sends a 1099-INT, and you report the interest on your tax return. Early withdrawal penalties reduce the interest amount reported.

What if I moved to a different state during the year?

You may owe tax to both states, depending on when you moved and each state's rules. File a part-year resident return in the state you left and a part-year return in the state you moved to. A tax preparer can help you calculate the correct allocation.