Yes, you must report savings account interest on your federal tax return
The IRS requires you to report all interest income, including interest earned in savings accounts, on your federal tax return. This applies whether the bank sends you a 1099-INT form or not. If you earned more than $10 in interest during the tax year, the bank will send you a 1099-INT. If you earned less, the bank may not send a form, but you still owe the tax on that interest.
Interest counts as ordinary income and is taxed at your regular income tax rate. You cannot ignore it just because the amount is small or because you did not receive a 1099-INT. The IRS matches 1099-INT forms filed by banks against tax returns, so unreported interest is likely to trigger a notice.
State income tax rules vary. Most states that have income tax also require you to report savings interest, but a few states do not tax interest income at all. Check your state's tax agency website to confirm the rule where you live.
Key Takeaways
- All savings account interest must be reported on your federal tax return, regardless of the amount or whether you receive a 1099-INT form.
- Banks send a 1099-INT only when interest exceeds $10, but you owe tax on any interest earned during the year.
- Interest is taxed as ordinary income at your regular tax rate, not at a special rate.
- State income tax treatment of interest varies by state, so check your state's rules before filing.
- The IRS cross-checks 1099-INT forms against tax returns, so unreported interest can result in an audit notice.
When the bank sends you a 1099-INT form
Your bank will mail or email you a 1099-INT by January 31 if you earned $10 or more in interest during the previous calendar year. The form shows the total interest earned in box 1. You will receive one form per bank account if you have multiple accounts at the same institution, or separate forms if you bank at different institutions.
The 1099-INT is not a bill or a tax payment request. It is a record of income that the bank also sends to the IRS. You use it to fill in your tax return. If you file electronically, tax software will often import the information directly from the IRS if you provide your Social Security number and the bank's routing number.
Keep the 1099-INT with your tax records for at least three years. If the form contains an error—wrong account holder name, wrong amount, or duplicate reporting—contact the bank immediately and ask for a corrected form (marked "Corrected" on the top).
Interest under $10 and unreported earnings
If you earned less than $10 in interest, the bank is not required to send a 1099-INT, but you still owe tax on that amount. You must add it to your tax return manually. Check your savings account statement for the interest posted during the year, or log into your online banking to find the annual interest total.
Some people assume that small amounts do not need to be reported. This is incorrect. The IRS expects all income to be reported. If you have multiple savings accounts at different banks, each earning less than $10, the total across all accounts still counts as taxable income.
If you discover you did not report interest in a prior year, you can file an amended return using Form 1040-X. The sooner you file, the lower the interest and penalties will be.
How interest income affects your tax bracket and refund
Interest income is added to your other income (wages, self-employment income, investment gains) to calculate your total taxable income. This can push you into a higher tax bracket, which means a larger portion of your income is taxed at a higher rate. Even a small amount of interest can affect your refund or the amount you owe.
If you are retired and living on Social Security plus savings interest, the interest can trigger taxation of your Social Security benefits. If your combined income (adjusted gross income plus half of Social Security) exceeds certain thresholds, up to 85% of your Social Security becomes taxable. The thresholds are $25,000 for single filers and $32,000 for married filing jointly.
If you are a dependent claimed on someone else's return, your interest income counts toward the dependent standard deduction limit. If your interest and other unearned income exceeds $1,250 (for 2024), you may owe tax even if your parents claim you as a dependent.
Reporting interest on your tax return
On the federal Form 1040, interest income goes on line 2b of the main form. If you use tax software, you will enter the 1099-INT information in the income section, and the software will place it on the correct line automatically. If you file by hand, add up all interest from all sources and enter the total on line 2b.
If you have more than one 1099-INT, add all the amounts together and report the total on line 2b. You do not need to list each form separately on the main return, but keep all forms with your records.
Schedule B (Interest and Ordinary Dividends) is required only if your interest income exceeds $1,500. If your interest is below that threshold, you can report it directly on line 2b without filing Schedule B.
State income tax reporting
Most states with income tax require you to report interest income on your state return as well. The amount and line number vary by state. Some states use the same 1099-INT information; others have their own forms or schedules.
A few states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you do not owe state income tax on savings interest, though you still owe federal tax.
If you moved during the year or earned interest in a state where you do not live, check that state's tax rules. Some states tax interest earned by residents even if the account is held out of state.
What happens if you do not report interest income
The IRS receives a copy of every 1099-INT filed by banks. If your tax return does not include the interest shown on the form, the IRS will likely send you a notice. The notice will show the unreported income and calculate the tax owed, plus interest and penalties.
Penalties for unreported income typically start at 20% of the unpaid tax. Interest accrues daily on the unpaid balance. If the IRS determines the omission was intentional, the penalty can be higher. Even if it was an honest mistake, you will owe the tax plus interest and penalties.
If you receive an IRS notice about unreported interest, respond within the deadline shown on the notice. You can agree, disagree, or request a payment plan. If you disagree, you have the right to appeal.
Frequently Asked Questions
Do I have to report interest if I did not withdraw the money?
Yes. Interest is taxable income the moment it is credited to your account, whether you withdraw it or leave it to compound. The IRS taxes interest earned, not interest spent.
What if my bank sent me a 1099-INT but I did not receive it?
Contact the bank and ask them to resend it or provide a duplicate. You can also log into your online banking portal—many banks post 1099-INT forms there by January 31. If you cannot get the form, call the IRS at 800-829-1040 and they can tell you what the bank reported.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount on your tax return. You cannot subtract fees, charges, or losses. However, if a bank charged you excessive fees and you closed the account, you may be able to deduct those as miscellaneous expenses under certain circumstances—consult a tax professional.
Is interest from a joint savings account split between owners for tax purposes?
Not automatically. The bank will issue a 1099-INT to whoever is listed as the account owner or primary holder. If the account is truly joint and both owners contributed equally, you may need to split the interest between you for tax purposes, but this requires agreement and documentation. Consult a tax professional if you are unsure.
Do I report interest from a savings account held in a child's name?
Yes, the child must report it on their own tax return, even if a parent claims them as a dependent. If the interest is under $1,250 and the child has no other income, they may not owe tax, but they should still file to document the income. If the interest exceeds $1,250, the child owes tax on the amount above the threshold.