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 self-employment income — 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 called a 1099-INT (or sometimes a 1099-OID) if you earned $10 or more in interest during the year. You use that form to report the interest on your tax return. Even if you earn less than $10 and don't receive a 1099-INT, you still have to report the interest if you file a return.
How much tax you actually pay depends on your total income for the year and your tax bracket. Someone in the 22% bracket pays more tax on the same interest than someone in the 10% bracket. The interest itself doesn't get taxed at a special rate — it's just added to your other income and taxed at whatever rate applies to you.
Key Takeaways
- Banks report interest of $10 or more on a 1099-INT form, which you must report on your tax return even if you don't receive the form.
- Interest is taxed as ordinary income at your regular tax rate, not at a separate capital gains rate.
- You owe tax on interest whether you withdraw it or leave it in the account to compound.
- High-yield savings accounts pay more interest, which means more taxable income and potentially a larger tax bill.
- Some retirement accounts like traditional IRAs and 401(k)s let interest grow tax-deferred, but regular savings accounts do not.
When the bank sends you a 1099-INT
Your bank will mail or email you a 1099-INT by January 31 of the year after you earned the interest. For example, interest you earned in 2024 will show up on a 1099-INT sent in January 2025. The form shows the total interest paid to you during that calendar year.
You need this form to fill out your tax return accurately. The IRS gets a copy too, so if you report a different amount than what the 1099-INT says, the IRS will notice. If you lose the form or don't receive it, you can log into your bank's website or call the bank to request a copy — they're required to send you one if you ask.
If you have multiple savings accounts at different banks, you'll receive a separate 1099-INT from each bank. You add up all the interest from all the forms and report the total on your return.
How interest gets taxed at your income level
Interest income doesn't have its own tax rate. Instead, it gets added to your other income — wages, self-employment income, rental income, and so on — and the total is taxed at your marginal tax rate, which is the rate that applies to your highest dollars of income.
If you earn $50,000 in wages and $500 in savings account interest, you report $50,500 in total income. That extra $500 gets taxed at whatever bracket you fall into. In 2024, if you're single and your income is between $47,150 and $100,525, your marginal rate is 22%, so you'd owe about $110 in federal tax on that interest (before credits or deductions).
The same interest earned by someone in the 10% bracket (income under $11,600) would generate about $50 in tax. Someone in the 35% bracket would owe about $175. The interest itself is identical; the tax bill changes because of where it falls in your income.
High-yield savings accounts and your tax bill
High-yield savings accounts pay significantly more interest than traditional savings accounts — sometimes 4% to 5% annually compared to 0.01% or less at major banks. That's good for your savings, but it means more taxable income and a larger tax bill.
If you have $50,000 in a high-yield account earning 4.5%, you'll earn about $2,250 in interest over a year. At a 22% tax rate, that's roughly $495 in federal income tax owed on that interest. With a traditional savings account earning 0.01%, you'd earn $5 and owe less than $2 in tax.
This doesn't mean high-yield accounts are a bad choice — you're still ahead financially because the interest you keep after taxes is more than you'd earn elsewhere. But it's worth factoring the tax cost into your planning, especially if you're close to a tax bracket boundary or if you're retired and trying to stay under income limits for Medicare premiums or other benefits.
Reporting interest on your tax return
You report interest income 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 it directly on Form 1040, line 2b, without filing Schedule B.
List each account or 1099-INT separately on Schedule B, then add them up and transfer the total to Form 1040. The IRS uses this to cross-check against the 1099-INT forms your banks sent them, so make sure your numbers match what's on those forms.
If you use tax software like TurboTax or TaxAct, you can enter the 1099-INT information directly into the program and it will populate the right forms for you. If you file by hand or work with a tax preparer, bring all your 1099-INT forms with you.
Tax-deferred alternatives to regular savings accounts
If you want to save money without paying tax on the interest each year, you have a few options. A traditional IRA or 401(k) lets interest and investment gains grow without annual tax. You don't pay tax until you withdraw the money in retirement. A Roth IRA lets interest grow tax-free forever — you never pay tax on the growth if you follow the rules.
These accounts have contribution limits and withdrawal restrictions, so they're not a replacement for a regular savings account. But if you're saving for retirement and have room in these accounts, they're a tax-efficient way to earn interest. Money in a regular savings account gets taxed on interest every year, but money in a traditional IRA or 401(k) doesn't.
You can also use a 529 college savings plan if you're saving for education. Interest and investment gains grow tax-free as long as you use the money for may have access to education expenses.
What to do if you didn't receive a 1099-INT
If you earned less than $10 in interest, your bank won't send you a 1099-INT. You still have to report the interest on your tax return if you file one. Check your bank statements or your online account to find the exact amount and report it.
If you earned $10 or more and didn't receive a 1099-INT by early February, contact your bank. Ask them to send you a copy or to confirm the amount so you can report it accurately. If the bank can't locate the form, you can report the interest based on your bank statements and note that you didn't receive the 1099-INT.
If you report an amount that differs significantly from what the IRS received on the 1099-INT, the IRS may send you a notice asking you to explain the difference. It's easier to match the 1099-INT amount when you file.
Frequently Asked Questions
Do I have to pay tax on interest I didn't withdraw?
Yes. The IRS taxes interest in the year you earn it, whether you withdraw it, leave it in the account, or reinvest it. If your bank automatically compounds interest, you still owe tax on the full amount earned that year, even if you never touched the money.
What if I have interest from multiple banks?
Add up all the interest from all your 1099-INT forms and report the total on your tax return. Each bank sends the IRS a copy of their 1099-INT, so the IRS knows about all your accounts. Report the combined total to match what they expect to see.
Can I deduct savings account interest as a loss?
No. Interest income is always taxable; you can't deduct it or offset it against other income. You report it as income and pay tax on it at your regular rate.
Is interest from a money market account taxed the same way?
Yes. Money market accounts, certificates of deposit (CDs), and other savings products all generate interest that's taxed as ordinary income. You'll receive a 1099-INT for each one if the interest is $10 or more.
What if my interest income pushes me into a higher tax bracket?
It's possible. If your wages are close to a bracket boundary and you earn significant interest, the combined income could move you into the next bracket. Only the income that falls into the higher bracket gets taxed at that rate, not all your income. You can estimate this using IRS tax tables or a tax calculator.