All savings account interest above $10 is taxable income on your federal return
The IRS treats savings account interest as ordinary income, meaning you owe federal income tax on every dollar your bank pays you. If your bank paid you $10 or less in interest during the year, you do not have to report it. If it paid you more than $10, you must include that amount on your tax return, even if the bank does not send you a form.
Your tax rate on interest income depends on your overall income and tax bracket for that year. A person in the 22% tax bracket pays 22 cents in federal tax on each dollar of interest. Someone in the 12% bracket pays 12 cents. The interest itself is not taxed at a special rate — it is added to your other income and taxed at whatever rate applies to your total.
States also tax savings interest in most cases. Some states exempt interest income below a certain threshold, and a few states do not tax interest at all. Your state tax rate is separate from your federal rate, so you may owe both.
Key Takeaways
- Interest over $10 per year must be reported on your federal tax return as ordinary income, taxed at your regular income tax rate.
- Banks send Form 1099-INT when interest reaches $10 or more, but you must report all interest income even if you do not receive the form.
- State income tax on savings interest varies by state — some states tax it, some exempt amounts below a threshold, and a few do not tax it at all.
- Interest earned in a traditional IRA or 401(k) is not taxed until you withdraw the money, but interest in a regular savings account is taxed in the year it is earned.
When your bank sends you Form 1099-INT
Your bank is required to send you a Form 1099-INT if the interest it paid you during the year totals $10 or more. The bank sends this form to you and to the IRS by January 31 of the following year. The form shows the exact amount of interest paid and the account number.
If you received a 1099-INT, you must report that interest on your tax return. The IRS already has a copy of the form, so the bank's records and your return should match. If they do not, the IRS will notice and may send you a notice asking for an explanation or additional tax.
If your interest was less than $10, your bank will not send a 1099-INT, but you still owe tax on that interest if you are required to file a return. You report it on your return even without the form. Keep your bank statements or year-end interest summary from your bank as proof of the amount.
How to report interest on your tax return
On the federal return, interest income goes on Schedule B (Interest and Ordinary Dividends) if you have more than $1,500 in interest and dividends combined. If you have $1,500 or less, you can report the interest directly on Form 1040, line 2b, without filing Schedule B.
Write the name of the bank and the amount of interest on the line provided. If you have interest from multiple banks or accounts, add them together and report the total. Attach your 1099-INT forms to your return when you file, or keep them with your records if you file electronically.
For state taxes, follow your state's instructions. Most states have a line on their income tax form for interest income. Some states use the same amount you reported to the IRS; others have their own rules. Check your state tax agency's website or your state return instructions for the exact line number and any special rules.
Interest in tax-advantaged accounts works differently
Interest earned inside a traditional IRA, Roth IRA, or 401(k) is not taxed in the year it is earned. Instead, the interest compounds inside the account tax-free. You do not receive a 1099-INT for interest in these accounts, and you do not report it on your tax return.
With a traditional IRA or 401(k), you pay income tax on the interest when you withdraw the money in retirement. With a Roth IRA, the interest is never taxed — withdrawals in retirement are tax-free as long as you follow the rules. This tax deferral or tax-free growth is one of the main reasons people use these accounts.
A Roth IRA also allows you to earn interest on money you have already paid taxes on, which means the interest itself is never taxed. This is different from a regular savings account, where you pay tax on the interest in the year it is earned.
How interest rates affect your tax bill
Higher interest rates mean more interest income, which means a larger tax bill. If your savings account earned $50 in interest last year and earns $200 this year because rates went up, you owe tax on the extra $150. The tax you owe depends on your tax bracket, so the amount varies by person.
A person in the 22% bracket who earns an extra $150 in interest owes an extra $33 in federal tax. Someone in the 12% bracket owes an extra $18. This is why some people move money to higher-yield savings accounts or money market accounts when rates rise — the extra interest can offset the extra tax, but only if the rate difference is large enough.
Keep in mind that interest rates can change, and so can your tax bracket. If you expect to earn significantly more interest this year, you may want to set aside money for taxes or adjust your withholding if you have other income.
What to do if you did not receive a 1099-INT
If your bank paid you $10 or more in interest but did not send you a 1099-INT by February 15, contact the bank and ask for it. The bank may have sent it to an old address, or there may have been a processing error. Most banks can reissue the form or provide a written statement of the interest paid.
If the bank cannot provide proof of the interest, use your bank statements to calculate the total. Add up the interest deposits shown on your statements for the entire year. Report this total on your tax return even without the 1099-INT form. Keep your bank statements as documentation in case the IRS asks questions.
If you received a 1099-INT but the amount is wrong, contact your bank immediately. The bank can issue a corrected form (Form 1099-INT with a "Corrected" box checked) and send it to you and the IRS. You should then file an amended return if you have already filed, or correct the amount before you file if you have not yet submitted your return.
State-specific rules for interest income
Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. However, some states have special rules. A few states do not tax interest income at all, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state tax on your savings interest.
Some states exempt interest income below a certain age or income threshold. For example, some states do not tax interest for people over 65 or for people with income below a certain level. Check your state tax agency's website or your state return instructions to see whether your state has these exemptions.
If you have accounts in multiple states — for example, if you moved during the year or have accounts in different states — you may owe tax to more than one state. Most states only tax interest from accounts held while you were a resident, but rules vary. Contact your state tax agency if you are unsure.
Frequently Asked Questions
Do I have to report interest if I did not get a 1099-INT?
Yes. If your bank paid you more than $10 in interest, you must report it on your tax return even if the bank did not send you a 1099-INT form. Use your bank statements to calculate the amount. The IRS expects all interest income to be reported, whether or not you receive a form.
What if I have interest from a savings account and a money market account at the same bank?
Add the interest from both accounts together. Report the total on your tax return. If the bank sends separate 1099-INT forms for each account, add the amounts shown on both forms and report the total. The bank may also send a combined 1099-INT showing all interest from that bank.
Can I deduct the taxes I pay on interest income?
No. Interest income is taxed as ordinary income, and you cannot deduct the tax you pay on it. However, if you paid state income tax on the interest, you may be able to deduct state and local taxes (SALT) up to $10,000 on your federal return if you itemize deductions.
Does interest in a joint savings account get split between owners for tax purposes?
Not automatically. The person whose Social Security number is on the account receives the 1099-INT. However, if you and the other owner contributed equally and own the account equally, you may need to split the interest income for tax purposes. Consult a tax professional or your state tax agency for guidance on your specific situation.
What if my interest income pushes me into a higher tax bracket?
Interest income is added to your other income, so it can push you into a higher bracket. For example, if you earn $50,000 in wages and $5,000 in interest, you are taxed on $55,000 total. This may result in a higher tax rate on some or all of your income. This is one reason to consider tax-advantaged accounts if you have significant savings.