Bank interest counts as income on your federal tax return

Interest your savings account earns is taxable income. The IRS treats it the same way it treats wages or salary — you have to report it, and you may owe federal income tax on it. Most banks send you a Form 1099-INT in January showing how much interest you earned the previous year, and that number goes on your tax return.

The amount of tax you actually owe depends on your total income and your tax bracket. Someone earning $25,000 a year will owe less tax on $100 of interest than someone earning $150,000 a year. But either way, you report it.

State income tax works the same way in most states — interest is taxable there too. A few states (like Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) have no state income tax at all, so residents of those states only report to the IRS. Others tax interest at the state level just as the federal government does.

Key Takeaways

  • Banks report interest to the IRS on Form 1099-INT, and you must report the same amount on your federal tax return.
  • The tax you owe on interest depends on your total income and your tax bracket, not on the interest amount alone.
  • Most states tax savings account interest the same way the federal government does, though eight states have no income tax.
  • If you earned less than $10 in interest, the bank may not send a Form 1099-INT, but you still report any interest you earned.
  • You report interest income on Schedule 1 (Form 1040) or Schedule B if you have more than $1,500 in total interest and dividends.

When the bank sends you Form 1099-INT

Your bank mails or emails Form 1099-INT by January 31 each year. This form shows the total interest you earned in the previous calendar year. The bank keeps a copy for the IRS as well, so the IRS already knows how much interest you earned before you file your return.

If you earned less than $10 in interest during the year, the bank is not required to send you a Form 1099-INT. However, you still owe tax on that interest if you file a return. If you earned interest at multiple banks, you will receive a separate Form 1099-INT from each one.

Check the form for accuracy. If the amount looks wrong, contact the bank and ask them to issue a corrected form. You will need the corrected version to file your return accurately.

How to report interest on your tax return

Where you report interest depends on how much total interest and dividend income you have. If your combined interest and dividends total $1,500 or less, you report the interest directly on Schedule 1 (Form 1040), line 8. You add that amount to your other income.

If your combined interest and dividends exceed $1,500, you must file Schedule B (Interest and Ordinary Dividends) and attach it to your Form 1040. Schedule B asks you to list each source of interest separately. This is where you enter information from each Form 1099-INT you received.

The total from Schedule B then transfers to Schedule 1, which feeds into your main Form 1040. The process is straightforward, but the IRS requires it so they can match what you report against what the banks reported to them.

Interest income and your tax bracket

Interest is ordinary income, meaning it is taxed at your regular income tax rate. If you are in the 12% federal tax bracket, you pay 12% federal tax on your interest. If you are in the 22% bracket, you pay 22%. The rate depends on your total income for the year, not on the interest alone.

This matters because earning interest can push you into a higher tax bracket. If you earned $50,000 in wages and $2,000 in interest, your taxable income is $52,000. That extra $2,000 might move you from the 12% bracket into the 22% bracket, meaning you pay more tax on all of your income above the bracket threshold.

High-yield savings accounts earn more interest than traditional savings accounts, so the tax impact is larger. A high-yield account earning 4% to 5% annually will generate more taxable income than one earning 0.01%, which is why some people use tax-advantaged accounts (like Roth IRAs or 529 plans) for larger savings goals.

State income tax on savings interest

Most states tax interest income the same way the federal government does — as ordinary income at your state tax rate. You report it on your state return using the same Form 1099-INT information.

Eight states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you do not owe state tax on your interest, though you still owe federal tax.

A few states have special rules. New Hampshire and Tennessee tax interest and dividends but not wages. Illinois taxes neither. If you live in a state with an income tax, your state tax return will have a line for interest income, usually near where you report federal taxable income.

What to do if you did not receive a Form 1099-INT

If you earned interest but did not receive a Form 1099-INT by early February, contact the bank. Ask them to send it or confirm whether the interest fell below the $10 reporting threshold. Keep any statements showing the interest you earned.

If the bank confirms you earned interest but will not send a form (because it was under $10), you still report that interest on your return. Write "MISC" or the bank name on Schedule 1 and enter the amount. The IRS expects you to report all interest, regardless of whether you received a form.

If you earned interest at a bank that has closed or merged, contact the successor bank or the FDIC. They can provide documentation of interest earned before the closure.

Interest from different account types

Interest from any savings account is taxable: regular savings accounts, money market accounts, certificates of deposit (CDs), and high-yield savings accounts all generate taxable interest. The account type does not matter — only the interest itself.

However, interest from certain accounts is not taxable. Interest earned in a Roth IRA or traditional IRA is not reported on your tax return (though you may owe tax when you withdraw from a traditional IRA). Interest in a 529 education savings plan is not taxed if you use the money for education expenses. Interest in a Health Savings Account (HSA) is tax-free if used for medical costs.

If you have savings in a regular bank account, though, all interest is taxable. There is no exemption based on how much you earn or how much interest you make.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

The bank does not have to send you a Form 1099-INT, but you still report any interest you earned on your tax return. If you earned $5 in interest, you report $5. The $10 threshold only determines whether the bank sends the form, not whether you owe tax.

What if the Form 1099-INT amount is wrong?

Contact your bank immediately and ask for a corrected form (called an amended 1099-INT). Do not file your return until you have the correct amount. If you already filed and the amount was wrong, you can file an amended return (Form 1040-X) once you have the corrected form.

Can I deduct interest I paid on a loan from my savings account interest?

No. Interest you earn is income you report. Interest you pay on a personal loan is not deductible. (Mortgage interest and student loan interest have their own deductions, but those are separate from savings account interest.)

Does a high-yield savings account change how I report interest?

No. You report interest from a high-yield account the same way as any other savings account — on the Form 1099-INT the bank sends and then on your tax return. The higher interest rate just means you have more taxable income to report.

What if I moved money between banks during the year?

Each bank reports only the interest earned in accounts you held with them. If you moved $10,000 from Bank A to Bank B in June, Bank A reports interest earned January through May, and Bank B reports interest earned June through December. You receive a Form 1099-INT from each bank and report both on your return.