Yes, you must report all savings account interest as income on your federal tax return
The IRS requires you to report every dollar of interest your savings account earns, no matter how small. Your bank sends you a Form 1099-INT each January showing the interest paid in the previous year. You then report that amount on your tax return as ordinary income, taxed at your regular income tax rate.
The threshold for receiving a 1099-INT is $10 — if your account earned $10 or more in interest during the year, your bank must send you the form. However, you still owe tax on interest below $10 even if you don't receive a form. The bank's failure to send the form does not erase the tax obligation.
Interest income is reported on Schedule B (if you have more than $1,500 in interest and dividend income combined) or directly on Form 1040 (if you have less). Either way, it counts as taxable income and can push you into a higher tax bracket.
Key Takeaways
- Banks report savings interest to the IRS on Form 1099-INT when interest reaches $10 or more in a calendar year.
- You must report all interest income on your federal tax return, even amounts under $10 and even if you don't receive a 1099-INT.
- Interest is taxed as ordinary income at your regular tax rate, not at a lower capital gains rate.
- If your bank reports the wrong amount on your 1099-INT, you can correct it on your return and attach a statement explaining the difference.
- Some accounts like Roth IRAs and 529 plans do not generate taxable interest because the accounts themselves are tax-sheltered.
How the 1099-INT form works and what it includes
Your bank generates a 1099-INT for each account that earned $10 or more in interest during the calendar year. The form shows the total interest paid, broken down by account type if you have multiple accounts at the same bank. You receive Copy B in the mail by January 31, and the bank sends Copy A to the IRS at the same time.
The 1099-INT also reports any federal income tax withheld from your account (which is rare for savings accounts but can happen in certain situations). If your account earned interest in multiple states, some states may require separate reporting, though the federal 1099-INT covers federal tax purposes only.
If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. You must add up all the interest from all forms and report the total on your tax return. The IRS cross-checks your return against the copies banks send them, so underreporting interest is likely to trigger a notice.
What happens if you don't report interest income
When you file your return, the IRS compares the interest you report to the 1099-INT forms banks submitted. If the amounts don't match, the IRS will send you a notice asking for an explanation or payment of the difference, plus interest and penalties. The penalty for underreporting income is typically 20% of the unpaid tax.
Even if your total income is low enough that you don't owe tax, you still must report the interest. Failing to file a return when required — even if you owe nothing — can result in a failure-to-file penalty. The safest approach is to report all interest, even small amounts, and let the tax calculation determine whether you actually owe.
If you discover you missed reporting interest in a prior year, you can file an amended return (Form 1040-X) for that year. The IRS generally looks back three years for routine audits, though they can go back further if they suspect fraud.
Interest from different account types and tax treatment
Regular savings accounts, money market accounts, and certificates of deposit (CDs) all generate taxable interest that must be reported. High-yield savings accounts earn more interest but are still fully taxable. The tax rate is the same regardless of the account type — ordinary income rates, which range from 10% to 37% depending on your total income and filing status.
Interest from accounts held in an IRA (traditional or Roth) is not reported on your personal tax return because the IRA itself is tax-sheltered. The same applies to 529 college savings plans and Coverdell education savings accounts — interest grows tax-free inside these accounts and is not reported annually. You only report taxes when you withdraw money (and then only in certain situations).
If you hold a savings account in a trust or as a custodian for a minor, the interest is still taxable. A child's savings account interest may be taxable to the child, the parent, or split between them depending on the account structure and the child's total income — this is called the "kiddie tax" rule and has specific thresholds that change each year.
Correcting errors on your 1099-INT
If your bank reports the wrong interest amount on your 1099-INT, contact the bank immediately and ask them to issue a corrected form (marked as a correction). The bank must send the corrected 1099-INT to you and the IRS by the end of February. Do not wait until tax time to discover the error.
If you receive a corrected 1099-INT after you've already filed your return, you can file an amended return to reflect the correct amount. Attach a statement to your amended return explaining the correction and referencing the corrected 1099-INT. Keep a copy of the corrected form with your tax records.
If the bank refuses to correct an obvious error, you can report the discrepancy directly on your tax return. On Schedule B or Form 1040, report the correct interest amount and attach a written statement explaining why it differs from the 1099-INT. Include your account number and the reason for the difference so the IRS can match your explanation to the bank's report.
State and local tax reporting for interest income
Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. However, a few states (including Pennsylvania, New Hampshire, and Tennessee) exempt interest and dividend income from state income tax entirely. If you live in one of these states, you still report the interest to the IRS, but you may not report it to your state.
Some cities impose local income taxes that also apply to interest income. New York City, for example, taxes interest at the local rate in addition to state and federal rates. Check your state and local tax authority websites to confirm the rules where you live.
If you moved during the year or lived in multiple states, you may owe tax to more than one state on the same interest. Your state of residence on December 31 typically determines which state gets to tax your full-year income, but some states have different rules. Keeping records of when you moved helps you file correctly if you're subject to multiple state returns.
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 still owe tax on all interest, including amounts under $10. If you earned $5 in interest and no form was issued, you must still report that $5 on your return.
What if I have multiple savings accounts at the same bank?
Your bank will typically combine the interest from all your accounts at that institution on a single 1099-INT. If you have accounts at different banks, each bank sends a separate form. Add up all the interest from all forms and report the total on your tax return.
Can I deduct savings account fees against the interest I earned?
No. You report the full interest amount as income and cannot offset it with account fees or other expenses. However, if you paid investment advisory fees or tax preparation fees related to managing your savings, those may be deductible under other rules — consult a tax professional about your specific situation.
What if my bank made an error and paid me too much interest?
You still owe tax on the interest your bank actually paid you, even if the payment was a mistake. If the bank later corrects the error by reducing your account balance, that reduction does not reduce your tax obligation for the year the interest was paid. Report the interest as received and contact the bank about the error separately.
Do I report interest differently if it's from a joint account?
If you own a joint savings account, the interest is typically split between the owners based on each person's ownership percentage. Your bank may issue separate 1099-INT forms to each owner, or one form showing the full amount — check with your bank. Each owner reports their share of the interest on their own tax return.