Interest from a savings account counts as taxable income
The IRS treats interest you earn on a savings account the same way it treats wages or salary — as ordinary income. That means you owe federal income tax on every dollar of interest your bank pays you, at your regular tax rate. Most banks will send you a Form 1099-INT in January showing how much interest you earned the previous year, and you report that amount on your tax return.
The amount of tax you actually pay depends on your total income and which tax bracket you fall into. Someone earning $30,000 a year pays a lower percentage on savings interest than someone earning $150,000. Your state may also tax the interest, depending on where you live.
The only exception is if your total interest earned was less than $10 in a year — the IRS does not require you to report amounts that small, though you can if you want to.
Key Takeaways
- Banks report savings account interest to the IRS on Form 1099-INT, and you must include that amount as income on your federal tax return.
- You pay income tax on interest at your regular tax rate, which depends on your total income for the year.
- Most states also tax savings interest, though a few do not tax any income at all.
- You do not owe tax on interest under $10 per year, but the bank may still send you a 1099-INT if they issued one.
How the IRS finds out about your interest
Your bank automatically reports interest to both you and the IRS using Form 1099-INT. The bank sends you a copy by January 31 each year, covering all interest paid during the previous calendar year. The IRS gets a copy at the same time, so they know exactly how much interest you earned.
If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. You add up all the interest from all your forms and report the total on your tax return. The IRS matches what you report against what the banks reported, so underreporting interest is caught quickly.
What tax rate applies to your interest
Interest is taxed as ordinary income, meaning it uses the same tax brackets as your salary or wages. If you are in the 22% tax bracket, you pay 22% on your interest. If you are in the 12% bracket, you pay 12%. The brackets change each year and depend on your filing status (single, married filing jointly, head of household, and so on).
This is different from long-term capital gains, which have their own lower tax rates. Interest does not get that break — it is taxed at your full ordinary income rate.
To find your bracket, look at your most recent tax return or use the IRS tax bracket tables on irs.gov. Add your interest income to your other income for the year to see where you land.
State income tax on savings interest
Most states tax interest the same way the federal government does — as ordinary income at your state tax rate. A few states do not tax income at all (including Florida, Texas, Wyoming, and South Dakota), so residents there owe federal tax on interest but no state tax.
Some states have special rules for retirees or people over a certain age, but these rarely apply to savings interest specifically. Check your state's tax authority website or your most recent state return to see whether interest is taxed in your state.
When interest is small enough that reporting might not matter
If your total interest for the year is less than $10, the IRS does not require you to report it. However, your bank may still send you a 1099-INT form — they are required to send one if they paid you interest, regardless of the amount. You can choose to report the interest anyway if you want, but you are not required to.
This $10 threshold is federal only. Some states have their own thresholds, so check your state's rules if you live in a state that taxes income.
How to report interest on your tax return
When you file your federal return, you report interest income on Schedule 1 (Form 1040), line 8a, or directly on Form 1040 line 8b if you use the simplified version. You enter the total interest from all your 1099-INT forms combined.
If you file electronically, the software will ask you to enter this information and place it in the right spot automatically. If you file by paper, write the total on the line provided and attach a copy of your 1099-INT forms to your return.
For state taxes, follow your state's return instructions. Most states have a similar line for interest income, and you report the same total there.
What happens if you do not report interest income
The IRS will notice. Because the bank reports the same interest to the IRS, the agency can see that you earned money you did not report. The IRS typically sends a notice asking you to file an amended return and pay the tax owed, plus interest and penalties.
If the amount is small, the IRS may simply adjust your return and send you a bill. If the amount is large or if you have a pattern of not reporting income, you could face penalties ranging from 20% to 75% of the unpaid tax, depending on the reason for the underreporting.
Frequently Asked Questions
Do I have to report interest if I did not receive a 1099-INT?
Yes. You owe tax on all interest you earned, whether or not the bank sent you a form. If you earned interest but did not get a 1099-INT, contact the bank and ask for one. If the bank says they are not required to send one (because the amount was under their threshold), you still report the interest on your return.
Can I deduct anything to reduce the tax on my savings interest?
No. Interest income is added to your other income, and you pay tax on the total. You cannot deduct the interest itself. However, if you have investment losses or other deductions, those may reduce your overall taxable income, which would indirectly lower the tax on your interest.
What if I moved during the year and have accounts in two states?
You report the interest to both states where you lived. Most states use a part-year resident calculation based on how many days you lived there. File a part-year return in each state and report your interest income according to that state's rules. The IRS will only tax it once at the federal level.
Does a high-yield savings account get taxed differently than a regular savings account?
No. Interest is interest. A high-yield account pays more interest, so you owe more tax on it, but the tax treatment is identical. You still report it on Form 1099-INT and pay ordinary income tax at your regular rate.
What if I earned interest but the bank has not sent me a 1099-INT yet?
Banks must send 1099-INT forms by January 31. If you have not received yours by early February, contact the bank. You can still file your return without it — you report the interest based on your own records — but having the form helps you make sure you have the right amount.