Yes, you must report savings account interest as income on your federal tax return
The IRS treats interest earned in a savings account as taxable income, the same way it treats wages or self-employment earnings. Your bank will send you a Form 1099-INT each January showing how much interest you earned during the previous year. You report this amount on your federal tax return, and most states require you to report it on your state return as well.
The threshold for reporting is low. If you earned $10 or more in interest during the year, your bank must send you a 1099-INT. However, you are required to report all interest income, even if you earned less than $10 and did not receive a form. The IRS has records of what your bank paid you, so underreporting or omitting it creates a mismatch that can trigger an audit notice.
The tax you owe on interest depends on your total income and tax bracket. Interest is taxed as ordinary income, not at a special rate. If you earned $500 in interest and you are in the 22% tax bracket, you would owe roughly $110 in federal tax on that interest (before any deductions or credits reduce your overall tax bill).
Key Takeaways
- Your bank reports all interest you earn to the IRS on Form 1099-INT, so the IRS already knows what you earned.
- You must report savings account interest on your federal tax return even if you earned less than $10 and did not receive a 1099-INT form.
- Interest is taxed as ordinary income at your regular tax rate, not at a preferential rate.
- Most states also require you to report interest income on your state tax return, though a few states do not tax interest.
- If you have multiple savings accounts, each bank sends a separate 1099-INT, but you combine all interest on one line of your tax return.
How the IRS knows about your interest income
Banks are required by law to report interest payments to the IRS. When you open a savings account, you provide your Social Security number or tax ID. At the end of each calendar year, the bank calculates the total interest paid to that account and files Form 1099-INT with the IRS. The bank also mails or makes available a copy to you.
The IRS cross-references 1099-INT forms with the tax returns filed by individuals. If you report $500 in interest but your bank reported $800, the IRS computer system flags the discrepancy. You will receive a notice asking you to explain the difference or pay the additional tax owed. This is one of the most common reasons for audit notices on otherwise straightforward returns.
If you have multiple savings accounts at different banks, each bank sends its own 1099-INT. You do not file multiple forms with the IRS — instead, you add up all the interest from all the forms and report the total on line 1b of Schedule 1 (Form 1040) for federal taxes.
Where to report interest on your tax return
On your federal return, interest income goes on Schedule 1 (Form 1040), line 1b. This line is labeled "Interest" and is part of the income section. You enter the total of all interest from all sources — savings accounts, money market accounts, CDs, bonds, and any other interest-bearing accounts.
If you file a simple return using the standard form, you may not see Schedule 1 at all. Tax software and tax preparers handle this automatically — they ask you for your 1099-INT information and place it in the correct spot on your return.
For state taxes, the location varies by state. Most states have a line for interest income on their main return form or on a state-specific schedule. A few states — including New Hampshire and Tennessee — do not tax interest income at all, so residents of those states do not report it on their state return (though they still report it federally).
What happens if you do not report interest income
Failing to report interest income is considered tax evasion by the IRS, even if the amount is small. The IRS receives a copy of every 1099-INT your bank files, so the omission is almost certain to be caught. The consequences include owing back taxes, plus penalties and interest on the unpaid amount.
The penalty for underreporting income is typically 20% of the underpaid tax. If you owed $100 in tax on $500 of unreported interest and you did not pay it, you would owe the $100 plus a $20 penalty, plus interest accruing daily from the original due date. Over several years, the interest compounds and the total bill grows quickly.
If the IRS determines the underreporting was intentional rather than a mistake, criminal charges are possible, though the IRS typically pursues this only for large amounts or repeated violations. For most people, the practical consequence is an audit notice, a bill for back taxes and penalties, and the cost and stress of responding to the IRS.
Interest income thresholds and reporting requirements
Your bank must send you a 1099-INT if you earned $10 or more in interest during the year. However, you are required to report all interest, even if you earned $5 and did not receive a form. The $10 threshold is only about whether the bank has to send you the form — it does not change your obligation to report.
If you earned less than $10 in interest and did not receive a 1099-INT, you still need to report that interest on your tax return. You can find the amount in your account statements or by contacting your bank. The IRS may not have a record of it if the bank did not file a form, but you are still legally required to report it.
Some accounts, such as certain trust accounts or accounts held by minors, have different reporting rules. If you are the custodian of a minor's account, the interest is reported on the minor's Social Security number, not yours. If you have questions about a specific account type, contact your bank or a tax professional.
How interest income affects your overall tax situation
Interest income is added to your other income to determine your total taxable income for the year. This affects which tax bracket you fall into and whether you remain under income limits for other tax benefits. For example, if you are close to the income limit for the Earned Income Tax Credit, an extra $500 in interest could push you over the limit and reduce or eliminate the credit.
Interest income also counts toward the income thresholds for Medicare premiums, student loan repayment plans, and other government benefits. If you are receiving need-based aid or benefits, reporting interest income could affect your benefit amount. This is one reason to track your interest earnings throughout the year rather than being surprised when you receive your 1099-INT.
High-yield savings accounts and money market accounts currently pay 4% to 5% annual interest, so even modest balances generate reportable income. A $10,000 balance earning 4.5% generates $450 in interest per year, which is taxable income. This is still a better return than traditional savings accounts, but it is worth factoring into your tax planning.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold only determines whether your bank sends you a 1099-INT form. You are required to report all interest income on your tax return, regardless of the amount. If you earned $5 in interest and did not receive a form, you still need to report it.
What if I did not receive a 1099-INT from my bank?
Contact your bank and ask for the form or the interest amount. Banks typically mail 1099-INT forms by January 31, but you can request it earlier. If the bank cannot locate it, your account statements show the interest credited each month — you can add those up yourself and report the total.
Can I deduct interest I paid on a loan from the interest I earned?
No. Interest you earned on savings is reported as income. Interest you paid on a loan (such as a mortgage or student loan) may be deductible, but it is claimed separately as a deduction, not netted against your interest income. These are two different lines on your tax return.
Do I report interest from a joint savings account differently?
If the account is jointly owned, the bank typically reports all interest to both owners' Social Security numbers, or splits it between them. Check your 1099-INT to see how much was reported to you. Report that amount on your return. Coordinate with the other owner to make sure you are not both reporting the full amount.
What if my savings account is in a child's name?
Interest earned in a minor's account is reported on the child's Social Security number and should be reported on the child's tax return, not the parent's. A child with interest income may be required to file a return even if they have no other income. The rules depend on the child's age and total income for the year.