Banks report interest you earn on savings accounts to the IRS, and you owe federal income tax on that interest at your regular tax rate
Any interest your savings account earns counts as taxable income. The bank sends a record of that interest to both you and the IRS on a Form 1099-INT each January. You then report that amount on your federal tax return, and it gets taxed as ordinary income — meaning at whatever tax bracket you fall into based on your total income for the year.
The amount of tax you owe depends on how much interest you earned and your overall income. A savings account earning $50 in interest over a year might owe you nothing if your income is low enough to fall below the standard deduction. The same $50 in interest could cost someone in a higher tax bracket $15 or more in federal tax.
State income tax works the same way: most states tax savings account interest as regular income, though a few states do not tax interest income at all. You report state tax separately on your state return.
Key Takeaways
- Banks report all savings account interest to the IRS on Form 1099-INT, which arrives by January 31 each year.
- You owe federal income tax on savings interest at your regular tax rate, which varies based on your total income for the year.
- Interest under $10 may not require a Form 1099-INT, but you still owe tax on it if your income is high enough.
- Most states tax savings interest as regular income, though a handful do not tax interest income at all.
- High-yield savings accounts earn more interest, which means higher tax bills — the interest rate does not change the tax treatment.
When the bank sends you a 1099-INT form
Your bank mails or emails a Form 1099-INT by January 31 if you earned $10 or more in interest during the previous calendar year. The form shows the total interest paid to your account. You receive one copy, the IRS receives another, and the bank keeps a third.
If you earned less than $10, the bank does not have to send a 1099-INT, but you still owe tax on that interest if your income is high enough to require filing a return. Some banks send a 1099-INT anyway even for small amounts — check your mail and your online banking portal in late January.
If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. If you have multiple accounts at the same bank, they may combine the interest on a single form or send separate forms depending on how the accounts are registered.
How interest income affects your tax bracket
Savings interest is added to your other income — wages, self-employment income, investment gains — to calculate your total taxable income for the year. That total determines which tax bracket you fall into, and that bracket determines the rate at which your interest gets taxed.
If you earned $50,000 in wages and $500 in savings interest, you owe tax on $50,500. If you are single, that puts you in the 22% federal tax bracket for 2024 (brackets change yearly). You do not pay 22% on all $50,500 — the tax system is progressive — but your $500 in interest will be taxed at the marginal rate for your bracket, which is higher than the rate on your first dollars of income.
This matters because earning more interest can push you into a higher bracket. Someone earning exactly $47,150 in wages (the top of the 12% bracket for single filers in 2024) who then earns $5,000 in savings interest will have some of that interest taxed at 22% instead of 12%.
State taxes on savings account interest
Most states treat savings interest the same way the federal government does: as ordinary income subject to your state income tax rate. States with income tax typically tax interest at the same rate they tax wages.
A few states do not tax interest income at all. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. Illinois, Mississippi, and Pennsylvania do not tax interest or dividend income specifically, even though they tax other forms of income. If you live in one of these states, you owe federal tax on your savings interest but not state tax.
If you live in a state with income tax, you report your interest on your state return the same way you report it federally — usually on a line that asks for interest and dividend income. Your state tax bill on that interest depends on your state's tax rate, which ranges from about 2% to over 10% depending on the state and your income level.
How high-yield savings accounts change the tax picture
A high-yield savings account earns more interest than a traditional savings account — sometimes 4% or 5% annually instead of 0.01%. That higher interest rate means a larger 1099-INT and a larger tax bill, but the tax treatment itself does not change.
If you keep $10,000 in a high-yield account earning 4.5%, you earn $450 in interest over a year. You owe tax on that full $450 at your regular income tax rate. A traditional savings account earning 0.01% on the same $10,000 earns $1 in interest, which you also owe tax on (though the tax bill is negligible).
The higher interest rate does not trigger different tax rules or special reporting. It simply means more interest income to report on your 1099-INT and more tax owed. Some people use high-yield accounts specifically because the interest earned outweighs the tax cost, especially if they are in a lower tax bracket.
What to do when you receive your 1099-INT
Check the 1099-INT against your own records. The form should match the interest your bank shows in your account statements for the year. If the amounts do not match, contact your bank to ask for a corrected form (called a 1099-INT correction or amended 1099-INT).
Keep your 1099-INT with your tax records. You do not mail it to the IRS — the bank already did that — but you need it to fill out your tax return. If you use tax software, you can enter the interest amount directly into the software, which will place it on the correct line of your return.
If you did not receive a 1099-INT by early February but you know you earned interest, check your online banking portal or contact the bank. If the bank cannot locate it, you can still report the interest on your return using your account statements as proof.
Interest from joint accounts and accounts held in trust
If you own a savings account jointly with another person, the bank reports the full interest amount on a single 1099-INT. The form goes to the person whose Social Security number appears first on the account. That person is responsible for reporting the interest, but both owners owe tax on their share of the interest based on their ownership percentage.
If the account is held in trust or under a custodian arrangement (such as a parent holding an account for a minor child), the 1099-INT goes to whoever has legal control of the account. The tax responsibility follows the same logic: whoever earned the interest owes tax on it, regardless of whose name is on the form.
If you and a co-owner split the interest differently than 50-50, you may need to file a separate statement with your tax return explaining the split. Keep documentation of any agreement about how you are dividing the interest.
Frequently Asked Questions
Do I owe tax on savings interest if I do not file a tax return?
If your total income is below the standard deduction for your filing status, you do not have to file a return and you do not owe federal income tax. However, if you earned interest and your income is above the standard deduction, you must report it even if you do not owe tax. State rules vary — check your state's requirements.
What if my bank reports the wrong amount of interest on the 1099-INT?
Contact your bank immediately and ask for a corrected 1099-INT. The bank will issue an amended form and send it to the IRS. Do not file your tax return until you have the corrected form. If you already filed, you can file an amended return once you receive the correction.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount on your return. Fees are not deductible against interest income. However, if a bank charged you a fee that reduced your interest, the 1099-INT should reflect the net amount actually paid to your account, not the gross interest before fees.
Does moving money between savings accounts change how much tax I owe?
No. Moving money does not create taxable income — only the interest earned on that money does. If you transfer $5,000 from one savings account to another, that transfer is not taxable. The interest earned on that $5,000 wherever it sits is what you owe tax on.
What if I earned interest in one year but withdrew the money in the next year?
You owe tax on the interest in the year you earned it, not the year you withdrew the money. If you earned $100 in interest in 2024, you report it on your 2024 tax return even if you closed the account and withdrew the money in 2025. The 1099-INT will show the 2024 interest amount.