Savings account interest counts as taxable income

Yes, you must report the interest your savings account earns on your federal tax return. The IRS treats interest as ordinary income, taxed at your regular income tax rate. Even small amounts count — there is no minimum threshold before you have to report it.

Your bank will send you a Form 1099-INT in January or early February if your account earned $10 or more in interest during the previous year. If you earned less than $10, your bank may not send the form, but you still owe tax on that interest. You report the amount on your Form 1040 or 1040-SR, on the line labeled "Interest" under income.

The interest amount your bank reports is the amount you use. You do not calculate it yourself or estimate it — the 1099-INT shows exactly what the IRS will see, because your bank sends a copy to the IRS as well.

Key Takeaways

  • All savings account interest is taxable income, even amounts under $10 that your bank does not report on a 1099-INT form.
  • Your bank sends Form 1099-INT to you and the IRS if interest reaches $10 in a calendar year, usually by early February.
  • You report the interest amount on your federal tax return as ordinary income on the "Interest" line.
  • Interest is taxed at your regular income tax rate, which depends on your total income and filing status, not at a special rate.
  • If you have multiple savings accounts or banks, each sends its own 1099-INT, and you add all the interest together when you file.

When your bank sends you Form 1099-INT

Banks mail Form 1099-INT by January 31 each year for interest earned in the previous calendar year. You should receive it in early February at the latest. The form shows the account number, the bank's name and address, and the total interest paid to that account during the year.

If you do not receive a 1099-INT by mid-February and you know your account earned interest, contact your bank directly. Ask them to send it or confirm whether they mailed it to an old address. If you moved during the year, update your address with the bank so future forms reach you.

Keep the 1099-INT with your tax records. You do not mail it with your return, but you need it to fill in the interest line on your Form 1040, and you should keep it for at least three years in case the IRS asks questions about your return.

How interest is taxed at your income tax rate

Savings account interest is taxed as ordinary income, meaning it is added to your wages, self-employment income, or other income sources and taxed at whatever rate applies to your total income. If you earn $50,000 and your savings account earns $500 in interest, you report $50,500 in total income, and your tax rate applies to that full amount.

The tax rate depends on your filing status (single, married filing jointly, head of household, and so on) and your total income for the year. The IRS publishes tax brackets each year that show what rate applies at each income level. A person in the 22 percent bracket pays 22 cents in federal tax on each dollar of interest; someone in the 12 percent bracket pays 12 cents per dollar.

This is different from capital gains, which have their own lower tax rates in some cases. Interest is always taxed as ordinary income, with no special lower rate.

Multiple accounts and multiple banks

If you have savings accounts at more than one bank, each bank sends its own Form 1099-INT showing interest from that account only. You add all the interest amounts together and report the total on your tax return. For example, if Bank A sends a 1099-INT showing $45 and Bank B sends one showing $38, you report $83 total on the "Interest" line of your Form 1040.

The IRS receives copies of all your 1099-INT forms from every bank, so they know your total interest income. Reporting the combined amount on your return matches what the IRS already has on file.

If you have multiple accounts at the same bank, that bank combines the interest from all of them into one 1099-INT form.

Interest under $10 and unreported amounts

Banks do not send a 1099-INT if interest is less than $10 in a year, but you still owe tax on it. If your savings account earned $7 in interest and your bank did not send a form, you still report that $7 on your tax return. The IRS does not know about it unless you tell them, but failing to report it is underreporting income, which can trigger an audit or penalty if discovered.

Keep track of interest from accounts that do not generate a 1099-INT. You can find the amount in your account statements or by logging into your online banking portal and reviewing the interest posted each month. Add those amounts up for the full year and report the total.

What happens if you do not report interest income

If you receive a 1099-INT and do not report it on your tax return, the IRS will notice. The IRS receives a copy of every 1099-INT sent to you, and their computers match those forms against filed returns. If your return shows no interest income but the IRS has a 1099-INT in your name, they will send you a notice asking for an explanation or demanding payment of the tax owed plus penalties and interest.

If you earned interest but did not receive a 1099-INT (because it was under $10 or the bank made an error), and you did not report it, the risk is lower but still present. The IRS may not catch small amounts, but if you are audited for other reasons, they will review all your income sources, including unreported interest.

The safest approach is to report all interest, whether or not you receive a form. The tax owed on small amounts is usually minimal, and reporting it keeps your return accurate and protects you from penalties.

Interest from joint accounts and accounts held in trust

If you own a savings account jointly with another person, the bank reports all the interest on one 1099-INT. The form goes to the primary account holder, but both owners are responsible for reporting their share of the interest. You and the other owner need to decide how to split the interest — usually 50-50 if you own it equally — and each report your share on your own tax return.

If the account is held in trust or in a minor's name, the rules are more complex. A custodial account for a child may have different reporting requirements depending on the child's age and total income. A trust account may require filing a separate trust tax return. Consult a tax professional if you hold accounts in these arrangements, as the reporting depends on the specific trust structure and state law.

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 that interest. Track it from your statements and report it on your return. The IRS has no record of it unless you report it, but failing to report is underreporting income.

What if my bank sent me a 1099-INT but I already withdrew the money?

You report the interest amount shown on the 1099-INT regardless of whether the money is still in the account. Interest is taxable income in the year it is earned, not in the year you spend it. The form shows what you owe tax on.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount shown on the 1099-INT. Savings account fees are not deductible on your federal return. Some states allow limited deductions for investment-related fees, but federal tax law does not.

Do I report interest on a money market account the same way?

Yes. Money market accounts are treated the same as savings accounts for tax purposes. Your bank sends a 1099-INT if interest reaches $10, and you report it as ordinary income on your federal return.

What if I closed the account before the end of the year?

You still report all interest earned in that account during the year, even if you closed it in November or December. The 1099-INT reflects interest through the date the account closed. Report the full amount on your return.