Yes, you must report all 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 tax on it. Your bank will send you a Form 1099-INT each January showing how much interest you earned during the previous year. You then report that amount on your tax return, typically on Form 1040 or Schedule B, depending on how much interest you earned and whether you have other investment income.

The requirement applies even if the interest is small. There is no minimum threshold — if you earned $1 in interest, it counts. The only exception is if your bank did not send you a 1099-INT because the interest fell below the reporting threshold (usually $10, though this varies by bank). Even then, you are still required to report it if you received it.

State taxes work the same way. Most states that have an income tax also tax savings account interest at your regular income tax rate. A few states do not tax interest income at all, so check your state's rules if you live outside the major tax states.

Key Takeaways

  • Your bank sends Form 1099-INT in January for any interest you earned, and you must report that amount on your federal tax return.
  • Interest income is taxed as ordinary income at your regular tax rate, not at a lower capital gains rate.
  • You report interest on Form 1040 (line 2b for most filers) or on Schedule B if you have more than $1,500 in interest and dividends combined.
  • Most states tax savings account interest the same way the federal government does, though a handful of states do not tax interest income.
  • If your interest is under your bank's reporting threshold (usually $10), you still owe tax on it even if you do not receive a 1099-INT.

Where to report interest on your tax return

The location depends on how much total interest and dividend income you have. If your combined interest and dividends are $1,500 or less, you report the interest directly on Form 1040, line 2b. This is the simplest route and covers most people with a single savings account.

If your combined interest and dividends exceed $1,500, you must use Schedule B (Interest and Ordinary Dividends) instead. You list each account or source of interest separately on Schedule B, then transfer the total to Form 1040. Schedule B also requires you to report whether you are a U.S. citizen and whether you have a foreign account, so it adds a few extra questions but is otherwise straightforward.

If you file electronically, your tax software will ask you about interest income and route it to the correct line automatically. If you file by hand, download the current Form 1040 and Schedule B from the IRS website to see the exact line numbers for the year you are filing.

How much tax you owe on interest income

Interest is taxed at your ordinary income tax rate, which is the same rate applied to your wages or salary. It does not receive the lower rate that applies to long-term capital gains or may have access to dividends. This means a person in the 22% tax bracket who earns $500 in savings account interest will owe roughly $110 in federal tax on that interest (before any deductions or credits reduce their overall tax bill).

The exact amount you owe depends on your total income for the year and your filing status. Someone with very low income may owe no tax at all, even on interest, because their income falls below the standard deduction. Someone with high income will owe tax at a higher rate. Your tax software or a tax preparer can calculate your specific liability once you enter all your income sources.

State tax on interest works the same way — it is taxed at your state income tax rate, which varies by state. If you live in a state with no income tax (such as Florida, Texas, or Wyoming), you owe no state tax on interest, only federal tax.

When your bank sends Form 1099-INT

Banks mail Form 1099-INT by January 31 each year for interest earned during the previous calendar year. You receive one copy in the mail and the IRS receives another copy automatically. The form shows your account number, the bank's name and tax ID, and the total interest paid to you during the year.

If you have multiple savings accounts at the same bank, they may combine the interest on a single 1099-INT or issue separate forms depending on the bank's system. If you have accounts at different banks, you will receive a separate 1099-INT from each bank.

Some banks do not issue a 1099-INT if interest falls below their reporting threshold, commonly $10. However, you are still required to report that interest on your tax return. Keep your monthly statements or year-end interest summary from your bank so you can verify the amount if needed.

Interest from high-yield savings accounts and money market accounts

High-yield savings accounts and money market accounts earn more interest than traditional savings accounts, so they generate larger 1099-INT forms. The tax treatment is identical — you report all of it as ordinary income. The higher interest rate does not change the tax rate you pay on it.

If you moved money between accounts during the year or opened a new account, make sure you receive a 1099-INT from each institution that held your money. Some people overlook interest from accounts they opened late in the year or closed early, so check all your statements from January through December.

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 when it matches your return against the forms it received from your bank. This can trigger a notice asking you to explain the difference or pay the tax you owe plus interest and penalties.

The penalty for not reporting income is typically 20% of the unpaid tax, plus interest calculated from the original due date. If the IRS determines the omission was intentional rather than a mistake, the penalty can be higher. Reporting the interest, even if you owe tax on it, is simpler and cheaper than dealing with an IRS notice later.

Frequently Asked Questions

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

Yes. Your bank may not send a 1099-INT for interest below $10, but you are still required to report it on your tax return. Keep your bank statements to verify the amount if the IRS asks.

Can I deduct savings account fees against the interest I earned?

No. You report the full interest amount on your tax return. Fees are not deductible against interest income. However, if your bank charged you a fee for maintaining the account, you may be able to deduct it as a miscellaneous expense in limited situations, though this is rare under current tax law.

What if I earned interest in a joint account with my spouse?

The bank will issue a 1099-INT showing the full interest amount and both spouses' tax IDs. You and your spouse must decide how to split the interest on your tax returns — typically 50/50 if you own the account equally. Report your share on your return and your spouse reports their share on theirs.

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

No. Interest from certificates of deposit (CDs), money market accounts, and traditional savings accounts are all taxed the same way — as ordinary income at your regular tax rate. The bank will send a 1099-INT for each type of account.

Do I report interest if I have a Roth IRA or 401(k)?

No. Interest earned inside a Roth IRA, traditional IRA, 401(k), or other retirement account is not reported on your tax return. The account itself is tax-sheltered. You only report interest from savings accounts outside retirement accounts.