You report savings account interest on your federal tax return each year, and the bank sends you a form showing how much you earned

The IRS taxes the interest your savings account earns as ordinary income. Your bank tracks this interest and reports it to you on a Form 1099-INT by January 31 each year. You then report that same amount on your federal tax return — usually on Schedule 1 (Form 1040) or directly on Form 1040 itself, depending on your filing method. You do not send money to the IRS specifically for savings interest; instead, you include it as income when you file your annual return, and your total tax bill reflects what you owe on all your income combined.

The amount of tax you actually owe depends on your total income and your tax bracket. Someone in the 12% tax bracket pays roughly 12 cents per dollar of interest earned; someone in the 22% bracket pays roughly 22 cents per dollar. If your total income is low enough, you may owe no federal tax at all, even with savings interest included. State income tax (where it exists) works the same way — the interest is reported and taxed as part of your overall income.

Key Takeaways

  • Your bank sends you a Form 1099-INT by January 31 showing all interest earned in the previous year, and you report that amount on your federal tax return.
  • Savings account interest is taxed as ordinary income at your regular tax rate, not at a special rate.
  • If you earned less than $10 in interest during the year, the bank may not send a 1099-INT, but you still report the interest if you file a return.
  • You do not make a separate payment for savings interest tax; the tax is calculated when you file your return and is part of your total tax bill.
  • High-yield savings accounts earn more interest and therefore generate a larger tax bill, but the tax treatment is identical to regular savings accounts.

When the bank sends you the 1099-INT form

Every bank that pays you interest on a savings account is required to send you a Form 1099-INT if you earned $10 or more in interest during the calendar year. The form arrives by January 31 and shows the total interest paid to you in the previous year. It lists your name, Social Security number, the bank's name, and the interest amount in Box 1.

You will receive one 1099-INT per bank account if each account earned $10 or more. If you have multiple savings accounts at the same bank, they may be combined into one form, or you may receive separate forms — this varies by bank. If you earned less than $10 in interest at a particular bank, that bank does not send a form, but you still report the interest on your return if you file one.

The bank also sends a copy to the IRS, so the IRS already knows how much interest you earned. This is why it is important to report the correct amount on your return — if your reported amount does not match what the bank reported, the IRS will notice and may send you a notice or bill.

How to report the interest on your tax return

If you file Form 1040 (the main federal income tax form), you report savings interest on Schedule 1, line 8b, labeled "Interest." Write the total interest from all your 1099-INT forms on this line. If you use tax software, you enter the amount when prompted for interest income, and the software places it in the correct location automatically.

If your only income is wages and savings interest, and your total income is below a certain threshold, you may be able to file a simpler form or may not need to file at all. The threshold changes each year and depends on your age and filing status. For 2024, a single person under 65 with only wages and interest does not need to file if their total income is under $14,600. Check the IRS website or use the IRS Interactive Tax Assistant to determine whether you must file.

You do not need to attach the 1099-INT to your return when you mail it in, but keep it with your tax records for at least three years. If you file electronically, the software handles the reporting automatically once you enter the amount.

Understanding your tax bracket and what you actually owe

The tax you owe on savings interest depends on your total income and your tax bracket. The federal tax system is progressive, meaning different portions of your income are taxed at different rates. If your total income (wages, interest, self-employment income, and other sources combined) falls into the 12% bracket, you pay roughly 12% tax on the interest. If it falls into the 22% bracket, you pay roughly 22%.

For example, if you earned $500 in savings interest and your income puts you in the 12% bracket, you owe approximately $60 in federal tax on that interest. If you are in the 22% bracket, you owe approximately $110. Your employer withholding or other tax payments throughout the year may already cover this amount, in which case you get a refund when you file. Or you may owe additional tax when you file.

State income tax works the same way. If your state has an income tax, the interest is added to your state taxable income and taxed at your state rate. Some states tax interest at a lower rate than wages, but most treat it the same. A few states (like Florida, Texas, and Wyoming) have no state income tax at all, so you owe no state tax on savings interest there.

What happens if you do not report the interest

The IRS receives a copy of every 1099-INT that your bank sends to you. If you do not report the interest on your return, the IRS will eventually notice the discrepancy. The IRS may send you a notice asking why your reported income does not match the 1099-INT, or it may simply calculate what it believes you owe and bill you for it, plus penalties and interest charges.

Penalties for underreporting income can range from 20% to 75% of the underpaid tax, depending on the reason for the error. Interest accrues on the unpaid tax from the original due date until you pay. Even a small amount of unreported interest can trigger a notice, and the cost of resolving it (penalties, interest, and the original tax) is usually much higher than the tax you would have owed if you had reported it correctly in the first place.

If you made an honest mistake, you can amend your return using Form 1040-X. The sooner you file the amended return, the lower the interest charges will be.

High-yield savings accounts and tax treatment

High-yield savings accounts earn significantly more interest than traditional savings accounts — sometimes 4% to 5% annually compared to 0.01% or less at a regular bank. This higher interest means a larger 1099-INT and a larger tax bill. However, the tax treatment is identical: you report the interest on your return and pay tax at your regular rate.

If you earned $5,000 in interest from a high-yield account, you report all $5,000 on your return. If you are in the 24% tax bracket, you owe approximately $1,200 in federal tax on that interest. This is why some people move money to high-yield accounts only when they do not need the interest for living expenses — the tax bill can be substantial.

Money market accounts and certificates of deposit (CDs) are taxed the same way. Any interest earned is reported on a 1099-INT and included as ordinary income on your tax return.

Strategies to reduce taxes on savings interest

You cannot avoid reporting savings interest, but you can reduce the amount of interest you earn and therefore the tax you owe. Keeping money in a regular savings account instead of a high-yield account means less interest and less tax. This is not usually a good strategy unless you have other reasons to avoid the interest.

Some people use tax-advantaged accounts like IRAs or 401(k)s to hold savings, because interest earned inside these accounts is not taxed each year — you only pay tax when you withdraw the money in retirement. However, these accounts have contribution limits and withdrawal restrictions, so they are not suitable for emergency savings or money you might need soon.

If you are retired or have very low income, you may be able to earn interest without owing any federal tax, because your total income stays below the filing threshold. A single person over 65 does not need to file a federal return if their income is below $17,550 for 2024 (the threshold is higher for older filers). If you are in this situation, you still report the interest on your return if you file one, but you may owe no tax.

Frequently Asked Questions

Do I have to pay taxes on savings interest if I earned less than $10?

If you earned less than $10 in interest, your bank does not send a 1099-INT. However, if you file a tax return, you should still report the interest you actually earned. The IRS may not know about it, but reporting it is the correct thing to do and avoids any future discrepancy.

What if I have savings accounts at multiple banks?

You receive a separate 1099-INT from each bank (if interest was $10 or more). Add up the interest from all forms and report the total on your tax return. The IRS receives copies of all the forms, so it knows your total interest earned.

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

No. You report the full interest amount shown on the 1099-INT. Fees charged by the bank are not deductible against the interest income. However, if the bank paid you interest and also charged you a fee, the net amount you received is what matters for your actual cash flow, even though you report the gross interest for tax purposes.

Do I owe taxes on interest I did not withdraw?

Yes. You owe tax on interest in the year it is earned, whether or not you withdraw it. If interest is automatically deposited into your account and left there, you still owe tax on it that year. This is different from capital gains, where you can sometimes defer tax by not selling.

What if the 1099-INT shows the wrong amount?

Contact your bank immediately and ask them to issue a corrected form (called an amended 1099-INT). Once you receive the corrected form, file an amended tax return if you already filed. Do not ignore the discrepancy, because the IRS will notice the mismatch between what you reported and what the bank reported.