You pay federal income tax on interest your savings account earns, but not on the money you deposit
The money you put into savings is yours — you do not owe tax on it. But the interest the bank pays you counts as income. The IRS treats it the same way it treats wages or freelance earnings. Your bank will report that interest to both you and the IRS on a Form 1099-INT if you earned $10 or more in a year. You then report it on your tax return.
How much tax you actually owe depends on your total income and your tax bracket. Someone earning $30,000 a year pays a lower rate on that interest than someone earning $150,000. If your savings account earned $50 in interest and you are in the 12% tax bracket, you would owe roughly $6 in federal tax on that interest alone — though your actual tax bill depends on all your income combined.
Some states also tax savings interest. A few states — including Pennsylvania, Illinois, and Mississippi — do not tax interest income at all. Most others do. You will need to check your state's rules or ask your tax preparer whether your state taxes savings interest.
Key Takeaways
- Interest earned in a savings account is taxable income to the federal government and must be reported on your tax return.
- Your bank sends you a Form 1099-INT if you earned $10 or more in interest during the year, and also sends a copy to the IRS.
- The tax rate you pay on interest depends on your total income and tax bracket, not on the interest amount alone.
- Some states do not tax savings interest, while others do — check your state's tax rules or speak with a tax preparer.
- High-yield savings accounts earn more interest, which means you will owe more tax, but the after-tax return is usually still higher than traditional savings.
How the IRS knows about your interest income
Banks are required to report interest to the IRS. If your account earned $10 or more in interest during the calendar year, your bank will mail you a Form 1099-INT by January 31 of the following year. The form shows the total interest paid and goes to both you and the IRS.
If you do not report that interest on your tax return, the IRS will notice the mismatch between what your bank reported and what you claimed. This can trigger an audit or a notice asking you to explain the difference. Even small amounts of unreported interest can cause problems, so it is important to include it when you file.
If you earned less than $10 in interest, your bank may not send you a 1099-INT, but you still owe tax on that interest. You will need to add it to your return manually if you know the amount.
What counts as interest and what does not
Interest is money the bank pays you for letting them use your deposits. This includes interest from savings accounts, money market accounts, and certificates of deposit (CDs). All of it is taxable.
The principal — the money you deposited yourself — is not taxable. If you put $5,000 into savings and it grows to $5,050 because of interest, you owe tax only on the $50, not the $5,050.
Bonus payments some banks offer for opening an account or meeting deposit requirements may also be taxable. Check the terms when you open the account, and ask the bank whether any bonus is reported as interest on your 1099-INT.
How tax brackets affect what you owe on savings interest
Your tax bracket is the rate you pay on your last dollar of income. If you earn $50,000 a year and are single, you are in the 12% federal tax bracket for 2024. If you earn $200,000, you are in the 24% bracket. The more you earn, the higher your bracket, and the more tax you pay on interest.
This means two people with the same $100 in savings interest will owe different amounts of tax. A person in the 12% bracket owes about $12. A person in the 35% bracket owes about $35. Your total income determines your bracket, not the interest alone.
If your income is very low — below the standard deduction for your filing status — you may not owe any federal tax at all, even on interest. The standard deduction for a single person in 2024 is $14,600. If your total income, including interest, is below that, you do not owe federal tax. But you may still need to file to get a refund of taxes withheld from paychecks.
State taxes on savings interest
Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. If your state has a 5% income tax and you earn $100 in interest, you owe about $5 to the state.
A handful of states do not tax interest at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — they have no state income tax. Pennsylvania and Illinois tax wages but not interest income. Mississippi taxes interest only if you are over 59½ years old.
If you live in a state that taxes interest, you will report it on your state tax return. Your bank's 1099-INT is the same form you use for both federal and state reporting.
High-yield savings accounts and tax liability
A high-yield savings account earns more interest than a traditional savings account — sometimes 4% or 5% annually instead of 0.01%. This means you earn more money, but you also owe more tax on that interest.
If you have $10,000 in a high-yield account earning 4.5%, you earn $450 a year in interest. If you are in the 22% tax bracket, you owe about $99 in federal tax on that interest. In a traditional account earning 0.01%, you would earn $1 and owe roughly $0.22 in tax. The high-yield account still leaves you ahead after taxes, but the tax bill is real.
Some people use tax-advantaged accounts to avoid this tax. Money in a Roth IRA or Roth 401(k) grows tax-free, and you do not owe tax on the interest. Money in a traditional IRA or 401(k) is tax-deferred — you do not pay tax now, but you will when you withdraw it in retirement. A regular savings account has no tax advantage, so all interest is taxable in the year it is earned.
What to do when you receive your 1099-INT
When your bank sends you a 1099-INT, keep it with your tax documents. You will need it to file your return accurately. The form shows your name, the bank's name, and the total interest paid.
Report the interest on your tax return. If you file on paper using Form 1040, you report interest on Schedule 1. If you use tax software, it will ask you to enter the amount from your 1099-INT, and the software will put it in the right place automatically.
If you received a 1099-INT but did not actually earn that much interest — for example, if you closed the account early or the bank made an error — contact the bank and ask for a corrected form. Do not ignore the discrepancy and hope the IRS does not notice.
Frequently Asked Questions
Do I have to file a tax return if I only earned interest and no wages?
Only if your interest income exceeds the standard deduction for your filing status. For 2024, a single person needs to file if they earned more than $14,600. If you earned less, you do not have to file federally, though you may want to if taxes were withheld from other income.
What if I earned interest but my bank did not send me a 1099-INT?
Banks only send a 1099-INT if you earned $10 or more. If you earned less, you still owe tax on it, but you will need to report it yourself. Check your account statements for the total interest paid and add it to your return manually.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount on your tax return. Fees are not deductible against interest income. However, if you paid significant investment-related fees, you may be able to deduct them separately if you itemize deductions, though the rules are strict.
Does moving money between my own savings accounts count as income?
No. Transferring money from one account to another is not income — it is just moving your own money around. Only the interest the bank pays you is taxable.
What if I earned interest in multiple accounts?
Each bank will send you a separate 1099-INT if you earned $10 or more in that account. You add up all the interest from all your accounts and report the total on your tax return. The IRS will see all the 1099-INTs, so make sure your return matches.