Banks do not tax your savings account, but the IRS taxes the interest your account earns
Your bank itself does not charge you a tax on the money sitting in your savings account. However, the interest your bank pays you on that balance is taxable income to the federal government—and possibly to your state as well. The bank's job is to report that interest to you and to the IRS; your job is to report it when you file your tax return.
The amount of interest you earn depends on your account's interest rate and your balance. Banks are required to send you a Form 1099-INT if you earned $10 or more in interest during the year. Even if you earn less than $10, you still owe tax on it—the bank just does not have to send the form.
Key Takeaways
- Banks report interest income to the IRS on Form 1099-INT when you earn $10 or more in a year.
- You must report all savings account interest on your federal tax return, even amounts under $10.
- Interest is taxed as ordinary income at your regular tax rate, not at a special rate.
- Some states do not tax interest income, so your state tax bill depends on where you live.
- The bank sends the 1099-INT to you and the IRS by January 31 of the following year.
How the IRS learns about your interest income
Every bank that pays you interest is required to report it to the IRS. The bank sends you a copy of Form 1099-INT and sends an identical copy to the IRS. This happens automatically—you do not have to ask for it or do anything to trigger it.
The bank mails or makes available the 1099-INT by January 31 of the year after you earned the interest. For example, interest you earned in 2024 will be reported on a 1099-INT you receive by January 31, 2025. If you have multiple savings accounts at different banks, you may receive multiple 1099-INT forms, one from each bank.
The IRS receives its copy at the same time. When you file your tax return, the IRS compares what you reported to what the bank reported. If the numbers do not match, the IRS will contact you.
What tax rate applies to your interest income
Savings account interest is taxed as ordinary income, which means it is taxed at the same rate as your wages or salary. If you are in the 22 percent federal tax bracket, your interest income is taxed at 22 percent. If you are in the 12 percent bracket, it is taxed at 12 percent.
The tax brackets change each year and depend on your filing status (single, married filing jointly, head of household, and so on) and your total income for the year. Your interest income is added to your other income to determine which bracket you fall into.
This is different from long-term capital gains, which have their own lower tax rates. Interest is not a capital gain—it is ordinary income, taxed at the full rate.
State income tax on savings interest
Whether your state taxes your interest income depends on where you live. Most states that have an income tax will tax interest the same way the federal government does—as ordinary income at your state tax rate.
However, some states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, which have no state income tax. A few other states have special rules: Illinois and Mississippi do not tax interest income even though they have income taxes on other types of income.
If you live in a state that taxes interest, you will report it on your state tax return using the same 1099-INT form the bank sent you. Your state tax bill will be added to your federal bill.
When interest is too small to report
If you earn less than $10 in interest during the year, your bank does not have to send you a 1099-INT form. However, you still owe tax on that interest if you file a return. You can find the amount by logging into your online banking or calling your bank—most banks track interest earned month by month.
If you do not file a tax return because your income is below the filing threshold, you do not owe tax on the interest either. The filing threshold depends on your age and filing status and changes each year. For 2024, a single person under 65 does not have to file if their income is under $14,600.
If you are unsure whether you need to file, the IRS has a tool on its website to help you determine your filing status based on your age, income, and filing status.
How to report interest income on your tax return
When you file your federal return, you will report your interest income on Schedule 1 (Form 1040), which is part of the standard tax return package. You add up all the interest from all your 1099-INT forms and enter the total on the line for interest income.
If you use tax software, the software will ask you to enter the information from your 1099-INT forms, and it will automatically place the total in the correct spot on your return. If you file by paper, you will write the total on the form by hand.
You do not have to attach the 1099-INT forms to your return, but you should keep them for your records in case the IRS asks questions later.
What happens if the bank reports the wrong amount
If you believe the interest amount on your 1099-INT is wrong, contact your bank first. Banks make mistakes—a transaction may have been recorded twice, or interest may have been credited to the wrong account. The bank can issue a corrected 1099-INT (called a 1099-INT with an X in the correction box) and send it to you and the IRS.
Keep the corrected form and file your return using the corrected amount. If you already filed your return using the wrong amount, you can file an amended return (Form 1040-X) once you receive the corrected 1099-INT.
If the bank will not correct the error, you can still file your return with the correct amount and attach a note explaining the discrepancy. The IRS will see both the bank's report and your return and will investigate if needed.
Frequently Asked Questions
Do I have to pay tax on interest if I am a minor?
Yes. A minor's interest income is taxable just like an adult's. However, a minor may be able to file a simpler return or may not have to file at all if the interest is their only income and it is below the filing threshold. Parents sometimes claim a minor as a dependent, which affects the minor's filing requirements.
What if I move to a different state during the year?
You report interest income to both states if you lived in each state for part of the year and both states tax interest. Each state taxes only the income earned while you lived there. You will need to file a part-year resident return in each state, and the 1099-INT will show the total for the whole year, so you may need to calculate how much interest was earned in each state based on your account statements.
Can I avoid paying tax on savings interest by moving money around?
No. The IRS taxes interest based on when it is earned, not on what you do with the money afterward. Moving money between accounts, withdrawing it, or spending it does not change the tax you owe on the interest that was paid to you.
Is interest from a joint savings account taxed differently?
A joint account's interest is reported on a single 1099-INT, but the tax responsibility depends on how the account is owned. If both owners contributed equally and own the account equally, you may each report half the interest. If one person owns it and the other is just an authorized user, the owner reports all of it. Consult your tax return preparer if you are unsure how to split the interest.
What if my bank did not send me a 1099-INT but I earned interest?
Contact your bank and ask for the form. Banks are required to send it by January 31. If the bank cannot locate it, ask for a duplicate or a statement showing the interest earned. You can then report the interest on your return even without the official form. The IRS will not penalize you for reporting interest that the bank failed to report to them, as long as you report it accurately.