Yes, you report savings account interest as income on your federal tax return

The IRS treats interest earned in a savings account as taxable income. You must report it on your tax return even if the bank did not send you a formal notice. The bank will send you a Form 1099-INT if you earned $10 or more in interest during the year, but you owe tax on all interest regardless of whether you receive that form.

Interest is reported on your federal return as ordinary income, which means it is taxed at your regular income tax rate. The amount you owe depends on your total income for the year and your tax bracket. Most states also tax savings account interest as part of your state income tax, though a few states do not have income tax.

If you earned interest but did not receive a 1099-INT, you still need to report it. You can find the exact amount by logging into your bank account online or calling your bank to ask for a year-end interest statement.

Key Takeaways

  • All savings account interest must be reported on your federal tax return, even amounts under $10 or if you did not receive a Form 1099-INT.
  • The IRS taxes savings interest as ordinary income at your regular tax rate, not at a special lower rate.
  • Banks send Form 1099-INT only when interest reaches $10, but you are responsible for reporting smaller amounts yourself.
  • Most states tax savings interest as part of state income tax, though you should check your state's rules if you live in a state without income tax.
  • You can find your exact interest amount by checking your bank statements or requesting a year-end interest statement from your bank.

When the bank sends you Form 1099-INT

Your bank mails or emails Form 1099-INT by January 31 each year if you earned $10 or more in interest during the previous calendar year. The form shows the total interest paid to you across all accounts you hold at that bank. If you have accounts at multiple banks, you will receive a separate 1099-INT from each one.

You receive two copies: one to attach to your tax return and one for your records. The form also goes to the IRS, so the agency knows you earned that interest. This is why reporting it is important — the IRS cross-checks what you report against what the bank reported.

If you earned interest but the amount was under $10, the bank will not send a 1099-INT. You still owe tax on that interest and must report it on your return. Check your year-end bank statements to find the exact amount.

How to report interest on your tax return

Interest income goes on Schedule B (Interest and Ordinary Dividends) if you are filing Form 1040. You list each bank or financial institution separately and enter the interest amount from the 1099-INT or from your bank statements. The total from Schedule B then transfers to your main tax return.

If you use tax software, the program will ask you to enter interest income and will place it in the correct spot automatically. If you file by hand, you can obtain Schedule B from the IRS website or ask a tax preparer for a copy.

You do not need to attach the 1099-INT to your return when you file, but keep it with your tax records for at least three years in case the IRS asks questions later.

Interest from joint accounts and accounts held by minors

If you hold a savings account jointly with another person, the bank reports the full interest amount on a single 1099-INT. You and the other account holder must decide how to split the interest for tax purposes — usually based on who contributed the funds or who owns what percentage of the account. Each person reports their share on their own tax return.

If a parent or guardian opens a savings account for a minor child, the interest is taxable income to the child, not the parent. The bank will issue a 1099-INT in the child's name and Social Security number. The child must report it on their own return if they are required to file, or the parent may need to report it on the parent's return under certain circumstances. The rules depend on the child's total income for the year.

State taxes on savings interest

Most states tax savings account interest as part of your state income tax return. You report the same interest amount you reported to the IRS on your state return as well. A handful of states — including Florida, Tennessee, Texas, and Wyoming — do not have a state income tax, so you would not owe state tax on the interest.

A few other states offer special treatment for interest income. New Hampshire and Tennessee tax interest and dividends but not wages. Some states allow a small deduction or exemption for interest earned by residents over a certain age. Check your state's tax agency website or ask a tax preparer about your state's specific rules.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT sent to you. If you do not report the interest on your return, the agency will likely notice the discrepancy when it processes your return. The IRS may send you a notice asking you to pay the tax owed plus interest and penalties.

Penalties for unreported income typically start at 20 percent of the unpaid tax. Interest accrues on the unpaid amount from the original due date of your return. If the IRS determines the omission was intentional fraud rather than an honest mistake, penalties can be much higher.

If you realize you missed reporting interest in a prior year, you can file an amended return using Form 1040-X. It is better to correct the error yourself than to wait for the IRS to contact you.

Interest from high-yield savings accounts and money market accounts

High-yield savings accounts and money market accounts earn more interest than traditional savings accounts, which means you will owe more tax on the earnings. The reporting process is identical: the bank sends a 1099-INT, and you report the interest on Schedule B. The higher interest rate does not change how you report it or what tax rate applies.

Some people move money to high-yield accounts specifically to earn more interest, but remember that the additional earnings are fully taxable. If you earn $500 in interest instead of $50, you owe tax on the full $500 at your regular income tax rate. Factor the tax impact into your decision about where to keep your savings.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The bank only sends a 1099-INT when interest reaches $10, but you owe tax on all interest regardless of the amount. Check your bank statements and report whatever you earned, even if it is $2 or $5.

What if I did not get a 1099-INT but I know I earned interest?

Contact your bank and ask for a year-end interest statement or a copy of the 1099-INT. If the bank cannot locate it, you can still report the interest based on your own bank statements. Keep records showing how you calculated the amount in case the IRS asks.

Can I deduct the taxes I paid on savings interest?

No. Interest income is reported as ordinary income, and you cannot deduct the tax you owe on it. However, if you paid state or local taxes on the interest, you may be able to deduct those taxes on your federal return if you itemize deductions, subject to the $10,000 cap on state and local tax deductions.

Do I report interest from a CD or money market account the same way?

Yes. CDs, money market accounts, and regular savings accounts all report interest on Form 1099-INT and are reported the same way on your tax return. The interest is taxable income regardless of the account type.

What if my bank is outside the United States?

You still owe U.S. federal tax on interest from foreign banks. The bank may or may not send a 1099-INT depending on whether it is a U.S. financial institution. Report the interest based on your bank statements. You may also have additional reporting requirements if the foreign account exceeds certain thresholds — consult a tax preparer about FBAR and FATCA rules.