Savings account interest counts as taxable income on your federal tax return

The interest your bank pays you on a savings account is ordinary income. The IRS taxes it the same way it taxes wages or salary — at your regular income tax rate. If you earn $100 in savings interest in a year, that $100 gets added to your total income when you file taxes, and you owe tax on it at whatever bracket you fall into.

Your bank reports this interest to the IRS on a Form 1099-INT each January. You receive a copy, and the IRS receives a copy. If you don't report the interest on your tax return, the IRS will notice the mismatch and may send you a bill or audit notice.

Most states also tax savings interest as income, using the same 1099-INT form. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all, so there is no state tax on the interest. New Hampshire and Tennessee tax only interest and dividends, not wages.

Key Takeaways

  • Savings interest is taxed as ordinary income at your federal tax rate, regardless of how small the amount.
  • Your bank sends you a Form 1099-INT in January reporting all interest earned during the previous year.
  • You must report this interest on your tax return, even if you did not receive a 1099-INT form.
  • Most states tax savings interest the same way the federal government does, but eight states have no income tax.
  • Interest below $10 may not trigger a 1099-INT, but you still owe tax on it if you have other income.

When you receive a Form 1099-INT and what it means

In late January or early February, your bank mails or emails you a Form 1099-INT for the previous calendar year. This 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.

The form lists the interest in Box 1. This is the number you report on your tax return. You do not need to do anything with the form itself — you do not mail it to the IRS. The IRS receives its own copy directly from the bank.

If you did not receive a 1099-INT but you know you earned interest, contact your bank and ask for a copy. Banks are required to send them, but mistakes happen. You still owe tax on the interest whether or not you have the form.

How to report savings interest on your tax return

The place to report savings interest depends on which form you file. If you use Form 1040 (the standard federal income tax form), you report interest on Schedule 1, Line 8a. The total goes into your adjusted gross income.

If you use tax software, it will ask you for the interest amount and put it in the right place automatically. If you file by hand or with a tax preparer, give them the 1099-INT and they will handle the reporting.

The interest is added to all your other income — wages, self-employment income, investment gains, and anything else — to calculate your total taxable income. Your tax bracket determines how much of that interest you owe in tax. If you are in the 22% bracket, you owe 22 cents in federal tax for every dollar of interest. State tax works the same way.

Interest below $10 and when you might not get a 1099-INT

Banks are not required to send a Form 1099-INT if the interest is less than $10 for the year. However, you still owe tax on that interest. If you have other income that requires you to file a return anyway, you must report the interest even if you did not receive a form.

If your only income is savings interest under $10, you probably do not have to file a federal return at all — the standard deduction is much higher. But if you have wages, self-employment income, or other sources, the interest must be reported.

Some banks report interest below $10 anyway, so you may receive a 1099-INT even for small amounts. Check your bank's website or call to find out their threshold.

How savings interest affects your tax refund or bill

Savings interest increases your total income, which can change how much tax you owe. If you have taxes withheld from paychecks, the extra income from interest might mean you owe more at tax time instead of getting a refund. It could also reduce the refund you were expecting.

The impact depends on your tax bracket and how much interest you earned. Someone earning $500 in interest in the 12% bracket owes an extra $60 in federal tax. Someone in the 24% bracket owes an extra $120 on the same $500.

If you expect to earn significant interest — say, more than $1,000 — you may want to adjust your withholding or make estimated tax payments during the year so you do not owe a large bill in April.

High-yield savings accounts and interest taxation

High-yield savings accounts pay more interest than traditional savings accounts, sometimes 4% to 5% annually depending on the market. The higher interest is still taxed the same way — it all goes on a 1099-INT and counts as ordinary income.

If you have $50,000 in a high-yield account earning 4.5%, you will earn about $2,250 in interest over a year. All $2,250 is taxable income. In the 22% federal bracket, that is $495 in federal tax, plus state tax if your state has one.

This is one reason some people use tax-advantaged accounts like Roth IRAs or 529 plans for savings — the interest in those accounts is not taxed each year. But those accounts have contribution limits and withdrawal rules.

What to do if your bank did not send a 1099-INT

If you earned interest but did not receive a Form 1099-INT by mid-February, contact your bank. Ask for a copy or ask them to send it electronically. Keep a record of the request in case the IRS asks about it later.

If the bank cannot locate the form or says interest was too low to report, ask for a written statement of the interest earned. You can use that statement to report the interest on your return even without the official form.

Do not skip reporting the interest just because you do not have the form. The IRS has its own copy from the bank, and if your return does not match, you will receive a notice.

Frequently Asked Questions

Do I have to report savings interest if I only earned a few dollars?

If you have other income that requires you to file a return, yes — you must report all interest, even small amounts. If your only income is savings interest under $10, you probably do not have to file at all. Check the current standard deduction to be sure.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount on your 1099-INT. Account fees are not deductible against interest income. However, if you have significant investment expenses, you may be able to deduct them under other rules — ask a tax preparer.

What if I moved money between banks mid-year and got two 1099-INTs?

Add up the interest from both forms and report the total on your return. Each bank reports only the interest from accounts you held there, so two forms means you need to combine them to get your actual total interest earned.

Does interest in a joint savings account get split between owners for tax purposes?

Not automatically. The bank reports the full interest to the IRS under the Social Security number of whoever is listed first on the account. You and the other owner need to decide who reports what and file accordingly, or you may both report it and file an amended return to correct it.

If I earn interest in December but do not receive it until January, which year do I report it?

Report it in the year you actually received it. If the bank paid the interest in January, it goes on next year's return, even if it was earned in December. The 1099-INT will show the correct year.