Bank interest counts as income on your tax return

Interest your bank pays you on a savings account, money market account, or certificate of deposit 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. Your state may tax it too, depending on where you live.

The bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year. If you earned $10 or more in interest from any single bank, they must send you this form. You then report that amount on your tax return, usually on Schedule 1 (Form 1040) or directly on your 1040 if you use the simpler version.

You cannot skip reporting it just because the amount is small. The IRS matches the 1099-INT the bank sends them against your return. If the numbers do not match, you will get a notice.

Key Takeaways

  • All bank interest is taxable income, no matter how small the amount, and the IRS receives a copy of the 1099-INT your bank sends you.
  • Banks must send you a Form 1099-INT if you earned $10 or more in interest during the year, but you may owe tax on smaller amounts too.
  • You report interest income on your federal tax return, and most states tax it as well unless you live in a state with no income tax.
  • The tax rate you pay on interest depends on your overall income and tax bracket, not on the interest amount alone.

When the bank sends you Form 1099-INT

Your bank mails or makes available the 1099-INT by January 31 each year. It shows the total interest paid to you during the previous calendar year. If you have accounts at multiple banks, you will receive a separate 1099-INT from each one that paid you $10 or more.

You should receive the form even if the interest is small — say $15 or $20. The $10 threshold is the minimum the bank must report to the IRS, but you still owe tax on any interest you earned, even if no form was issued. If a bank paid you $8 in interest and did not send a 1099-INT, you still need to report that $8 on your return.

Check your 1099-INT carefully. If the amount looks wrong, contact the bank and ask them to issue a corrected form (a 1099-INT with a "Corrected" box checked). You will need the corrected version to file an accurate return.

How interest income affects your tax bill

The tax you owe on interest depends on your tax bracket — the percentage rate applied to your total income. If you earn $50,000 a year and receive $500 in interest, that $500 is added to your $50,000, and you pay tax on $50,500 at your bracket rate. You do not pay a flat rate on the interest alone.

For example, if you are in the 12% federal tax bracket, you owe roughly 12% of the interest in federal tax. If you are in the 22% bracket, you owe roughly 22%. The exact amount depends on whether you take the standard deduction, have other deductions, and whether you are filing single, married, or head of household.

Most states also tax interest income. If you live in California, New York, or Illinois, your state income tax will add another 5% to 13% on top of federal tax, depending on your state bracket. Nine states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire), so residents of those states owe only federal tax on interest.

Reporting interest on your tax return

You report interest income on Schedule 1 (Form 1040) in the section labeled "Interest." Add up all the 1099-INT forms you received and enter the total. If you only have interest income and no other income to report, you can enter it directly on line 8 of Form 1040 instead.

If you earned interest from a brokerage account, a bond, or Treasury securities, those may appear on a different form — usually a 1099-OID or 1099-DIV — but the reporting process is the same. The IRS has a worksheet on their website that walks you through adding up multiple forms if you have accounts at several banks.

Keep your 1099-INT forms with your tax records for at least three years. You do not mail them with your return, but the IRS may ask to see them if they audit you.

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

If you earned interest but the bank did not send you a 1099-INT, you still have to report it. This happens most often with very small amounts — under $10 — or with banks that made an error. Contact the bank and ask whether they issued the form. If they say no, ask them to send you a written statement showing the interest paid.

Report the interest on your return using that statement as proof. Write "Statement" next to the amount if you are filing by hand, or note it in the memo field if you are using tax software. Keep the bank's statement with your records.

If the bank issued a 1099-INT but you never received it, ask them to resend it or provide a duplicate. Do this as soon as you realize it is missing, because the IRS receives their copy in January and will expect to see it on your return.

Interest from different account types

All interest is taxable regardless of the account type. A high-yield savings account, a traditional savings account, a money market account, and a certificate of deposit all generate taxable interest. The rate does not matter — whether you earned 0.01% or 5%, you report it.

Joint accounts work the same way. If you and a spouse own a joint savings account and the bank paid $200 in interest, you each report your share on your individual returns. The 1099-INT will show the total, so you will need to split it based on your ownership percentage (usually 50/50 unless you own it differently).

Interest from a child's savings account is taxable to the child, not the parent. If your child earned interest, they must report it on their own return, even if you claim them as a dependent. However, if the child's total income is below the standard deduction for their filing status, they may not owe tax even though they have to file.

Frequently Asked Questions

Do I have to report interest if I only earned a few dollars?

Yes. The IRS requires you to report all interest income, even $5 or $10. The bank only sends a 1099-INT if you earned $10 or more, but you still owe tax on smaller amounts. The IRS cross-checks 1099-INT forms against returns, so unreported interest can trigger a notice.

Can I deduct anything against my interest income?

No. Interest income is added to your other income, and you cannot deduct expenses against it. You can only reduce your overall tax bill by taking the standard deduction or itemizing deductions, which are separate from interest income.

What if the 1099-INT shows the wrong amount?

Contact your bank immediately and ask for a corrected 1099-INT. They will issue a new form marked "Corrected" and send copies to you and the IRS. Use the corrected form on your tax return. Keep both the original and corrected forms with your records.

Do I owe tax on interest if I am retired and have no other income?

It depends on how much interest you earned and your age. If you are over 65, your standard deduction is higher, so you may not owe tax even with interest income. However, you still have to file a return and report the interest. Use the IRS standard deduction worksheet for your age and filing status to find out whether you have to file.

Is interest from a savings account taxed differently than interest from a CD?

No. Both are taxed as ordinary income at your tax bracket rate. The only difference is when you receive the money — a CD may not pay interest until it matures — but the tax treatment is identical once you receive it.