Savings account interest counts as income on your tax return
The interest your bank pays you on a savings account is taxable income. The IRS treats it the same way it treats wages or other money you earn. You report it on your federal tax return every year, and depending on your state, you may owe state income tax on it as well.
Your bank will send you a Form 1099-INT in January or early February if you earned $10 or more in interest during the previous year. This form shows exactly how much interest you received. You use this number when you file your taxes. If you earned less than $10, your bank may not send a form, but you still owe tax on that interest — you have to report it yourself.
The amount of tax you pay depends on your total income and your tax bracket. Someone in the 22% tax bracket pays roughly 22 cents in federal tax for every dollar of interest earned. State tax varies by where you live — some states have no income tax at all, while others tax interest at rates between 3% and 13%.
Key Takeaways
- Interest earned on savings accounts is reported to the IRS on Form 1099-INT and must be included on your tax return.
- You owe federal income tax on all interest, even amounts under $10 that your bank does not report on a form.
- Your state may also tax savings interest, depending on whether your state has an income tax and what rate applies to your income level.
- High-yield savings accounts earn more interest than traditional savings accounts, which means you will owe more tax on the earnings.
When your bank sends Form 1099-INT
Your bank mails or emails Form 1099-INT by January 31 each year if you earned $10 or more in interest during the previous calendar year. The form shows the account number, the total interest paid, and sometimes a breakdown by month. You receive a copy for your records, and the bank sends a copy to the IRS.
If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. When you file your taxes, you add up all the interest from all your forms and report the total on your return. If you earned interest at only one bank and the amount was under $10, you will not receive a form, but you still need to report that interest on your return.
Keep your 1099-INT forms until you file your taxes. If you file electronically, you do not need to attach them, but keep them with your tax records in case the IRS asks questions later. If you file on paper, do not send the forms with your return — just keep them for your records.
How to report interest on your tax return
On your federal return, you report savings interest on Schedule B (if you have more than $1,500 in interest and dividends combined) or directly on Form 1040 (if you have less). You list each 1099-INT you received, add them up, and enter the total on the appropriate line.
If you use tax software, it usually walks you through entering the information from your 1099-INT forms. If you work with a tax preparer, bring your forms with you. The software or preparer will put the number in the right place on your return automatically.
For state taxes, the process varies. Some states use the same federal income tax return and automatically include your interest income. Others require a separate state return. A few states with no income tax do not tax interest at all. Check your state's tax authority website or ask a tax preparer what you need to file in your state.
The difference between high-yield and traditional savings accounts
A high-yield savings account earns interest at a much higher rate than a traditional savings account — often 4% to 5% annually, compared to 0.01% or less at many big banks. That means you earn more money, which also means you owe more tax on that money.
For example, $10,000 in a traditional savings account earning 0.01% annually generates $1 in interest and $0 in federal tax (assuming you are in a lower tax bracket). The same $10,000 in a high-yield account earning 4.5% generates $450 in interest and roughly $99 in federal tax (at the 22% bracket). The higher rate is still worth it for most people, but you need to plan for the tax bill.
Some people move money to high-yield accounts late in the year and are surprised by the tax bill in April. If you do this, set aside money for taxes or make an estimated tax payment to avoid penalties. Your tax software can estimate what you will owe based on your interest income and other income sources.
What happens if you do not report interest income
If you receive a 1099-INT and do not report the interest on your tax return, the IRS will notice. The bank sends a copy of every 1099-INT to the IRS, and the agency matches those forms against the returns it receives. If your return does not include the interest, you will receive a notice asking for the missing income.
The IRS will calculate the tax you owe plus interest on that tax (currently around 8% per year). If the IRS determines the omission was intentional rather than a mistake, you may also face a penalty of 20% of the unpaid tax. If you simply forgot to report the interest, the IRS is usually willing to work with you, but you will still owe the tax and interest.
If you realize you missed reporting interest from a prior year, you can file an amended return using Form 1040-X. It is better to file the amendment yourself than to wait for the IRS to contact you, because it shows good faith and may reduce or eliminate penalties.
Strategies to reduce tax on savings interest
You cannot avoid paying tax on savings interest, but you can reduce the amount you owe by earning less interest — which sounds worse than it is. If you have money you do not need right away, keeping it in a savings account earning 4% is still better than keeping it in a checking account earning 0%, even after taxes.
Some people use tax-advantaged accounts to reduce their overall tax burden. A traditional IRA or 401(k) lets you earn interest on retirement savings without paying tax on it until you withdraw the money in retirement. A Roth IRA lets you earn interest tax-free forever, as long as you follow the withdrawal rules. These accounts have contribution limits and rules about when you can withdraw, so they work best if you have money you genuinely will not need for years.
If you are retired or have very low income, you might owe no federal income tax at all, even on savings interest. The standard deduction (the amount of income you can earn tax-free) is $13,850 for a single person and $27,700 for a married couple filing jointly in 2024. If your total income, including interest, is below these amounts, you owe no federal tax. State taxes work differently, so check your state's rules.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. Your bank does not send a 1099-INT for amounts under $10, but you still owe tax on that interest. You report it on your tax return yourself. The IRS expects you to report all income, regardless of whether you receive a form.
What if I earned interest at multiple banks?
You will receive a separate 1099-INT from each bank. Add up all the interest from all your forms and report the total on your tax return. If you use tax software, you can enter each form separately and the software will add them up for you.
Can I deduct savings account fees from my interest income?
No. You report the full interest amount on your return. Savings account fees are not deductible. However, if a bank charges you a fee for falling below a minimum balance, that is a cost of maintaining the account, not a reduction in your interest income.
Do I owe tax on interest if I am under 18?
Yes. Age does not matter — all interest income is taxable. A minor with a savings account in their own name must report the interest on their own tax return. Parents cannot claim the interest as their own income just because they opened the account.
What if my bank sent me a 1099-INT but I did not receive it?
Contact your bank and ask them to resend it or provide the information. You can also log into your online banking and look for tax documents. If you cannot find the exact amount, your bank can tell you how much interest you earned. Report that amount on your return even if you do not have the physical form.