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. Interest is taxable income. Your bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year, and you report that amount on your tax return. If you earned less than $10 in interest, your bank may not send a form, but you still owe tax on it—you have to track it yourself and report it anyway.

The tax applies to all types of savings accounts: regular savings, money market accounts, certificates of deposit (CDs), and high-yield savings accounts. It does not matter whether you withdrew the money, left it sitting, or moved it to another bank. If the account earned interest in that tax year, you report it.

You report savings interest on Form 1040, Schedule 1 (or directly on Form 1040 if you use the short form). The interest goes into your total income for the year, which can push you into a higher tax bracket or affect other tax benefits you might otherwise receive.

Key Takeaways

  • Your bank sends Form 1099-INT in January if you earned $10 or more in interest, but you must report all interest income even if you receive no form.
  • Savings account interest is reported on Schedule 1 of Form 1040 and counts as ordinary income taxed at your regular rate.
  • Interest income can reduce tax credits you might otherwise receive, such as the Earned Income Tax Credit or education credits.
  • If your bank reports interest to the IRS on Form 1099-INT, the IRS will cross-check your return to make sure you reported the same amount.

How the IRS knows about your interest income

Banks report interest to the IRS automatically using Form 1099-INT. Your bank sends you a copy and files a copy with the IRS. The IRS matches what your bank reports against what you report on your return. If you report less interest than your bank reported, or if you report nothing at all, the IRS will notice the mismatch and may send you a notice or bill you for the difference plus penalties and interest.

This matching happens even if you do not file a return. If your bank reports interest income to the IRS and you do not file, the IRS may file a return for you or send you a bill based on what the bank reported. The only way to avoid this is to report the interest yourself.

If you earned less than $10 in interest, your bank is not required to send Form 1099-INT, but the IRS still expects you to report it. Keep your own records of interest earned so you can report it accurately.

When interest income affects your tax bill or refund

The amount of tax you owe on savings interest depends on your overall income and your tax bracket. If you are in the 22% tax bracket, you will owe roughly 22 cents in federal tax for every dollar of interest. If you are in the 12% bracket, it is roughly 12 cents per dollar. State income tax may apply on top of that, depending on where you live.

Interest income can also reduce or eliminate tax credits you might otherwise receive. For example, if your interest income pushes your total income above the threshold for the Earned Income Tax Credit, you lose part or all of that credit. The same applies to the American Opportunity Tax Credit, the Lifetime Learning Credit, and the Saver's Credit. A small amount of interest can cost you hundreds of dollars in lost credits.

If you are retired and living on Social Security, interest income can trigger taxation of your benefits. If your combined income (adjusted gross income plus half your Social Security benefits) exceeds certain thresholds, up to 85% of your Social Security becomes taxable. Even $500 in interest can push you over that line.

How to report savings account interest on your return

Start by gathering your Form 1099-INT from your bank. The form shows the interest in Box 1. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. Add up all the interest from all your forms.

On Form 1040, you report the total on Schedule 1, Line 8b (Interest). Write the total amount there. If you have only one source of interest and it is under $1,500, you can report it directly on Form 1040 without filing Schedule 1, but most people file Schedule 1 anyway because it is simpler and clearer.

If you received a 1099-INT but the amount is wrong—for example, your bank made an error—contact the bank and ask them to issue a corrected form. Do not just report a different number on your return. The IRS will see the mismatch and will contact you. Once the bank issues a corrected form, file an amended return (Form 1040-X) with the correct amount.

Interest income from joint accounts and accounts held by minors

If you own a savings account jointly with another person, the interest belongs to whoever owns the account. If you and your spouse own it jointly and you file jointly, you report the interest on your joint return. If you own it jointly with someone else—a parent, a sibling, a friend—you report only your share of the interest. Your bank may report the full amount to one of you; if so, you and the other owner need to split it correctly on your respective returns.

If you opened a savings account for a minor child and the account earns interest, the child is responsible for reporting that interest on their own tax return, even if you paid the taxes. The interest belongs to the child, not to you. However, if the child's total income is below the standard deduction for that year, they may not owe tax on it. Check the current year's standard deduction for dependents to see whether your child needs to file.

Some parents use the Kiddie Tax rules to shift investment income to a child in a lower tax bracket. Interest income is subject to Kiddie Tax if the child is under 18 (or under 24 if a full-time student with limited income). Above certain thresholds, the excess is taxed at the parent's rate, not the child's. Consult a tax professional if you are using this strategy.

What to do if you did not receive a Form 1099-INT

If you earned interest but your bank did not send you a 1099-INT, you still have to report it. This happens most often when interest is under $10, or when you closed an account mid-year and the interest was minimal. Check your bank statements for the year and add up all the interest posted to your account. Report that total on your return.

If you earned more than $10 in interest and your bank did not send a form, contact the bank and ask why. The bank may have the wrong address for you, or it may have made an error. Ask the bank to issue the form. If the bank refuses or says it is too late, you can still report the interest on your return based on your own records. Keep copies of your bank statements as proof in case the IRS asks.

If you cannot find your 1099-INT, contact your bank and ask for a duplicate. Most banks can reissue forms through their website or by phone. Do not guess at the amount or leave it off your return.

State income tax on savings interest

Most states tax interest income the same way the federal government does. You report it on your state return as well. A few states—including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—do not have a state income tax, so you do not report interest to the state. New Hampshire and Tennessee tax only interest and dividend income, not wages.

If you live in a state with income tax and earned interest, check your state's tax form to see where to report it. Usually it goes on a line labeled "Interest Income" or "Taxable Interest." Some states allow you to exclude a small amount of interest income (often $100 or less) if you are over a certain age or meet other conditions. Check your state's rules.

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 Form 1099-INT. You must report all interest income on your tax return, regardless of the amount. Track it yourself using your bank statements if you do not receive a form.

What if the interest on my Form 1099-INT is wrong?

Contact your bank immediately and ask for a corrected form. Once the bank issues a corrected 1099-INT, file an amended return (Form 1040-X) with the correct amount. Do not report a different number on your original return without a corrected form from the bank, or the IRS will flag the mismatch.

Can I deduct savings account fees against the interest I earned?

No. You report the full interest amount as income. Savings account fees are not deductible on your personal tax return. You pay tax on the gross interest, not the net interest after fees.

Does interest from a CD count as savings account interest?

Yes. CDs are reported on Form 1099-INT just like savings accounts. You report the interest on Schedule 1 of Form 1040. If you withdrew money early and paid a penalty, you can deduct the penalty on Form 1040, Line 33.

What if I moved money between banks during the year?

Each bank reports only the interest earned while the money was in that account. You will receive a separate 1099-INT from each bank. Add up all the forms and report the total on your return. The IRS will see all the forms and will cross-check your return against all of them.