You owe federal income tax on savings account interest, but only if your total interest crosses a reporting threshold
The IRS requires you to report interest earned in a savings account as income on your federal tax return. However, you do not owe tax on the account itself — only on the interest it generates. If your savings account earned less than $10 in interest during the year, you do not have to report it. If it earned $10 or more, your bank will send you a Form 1099-INT by January 31, and you must include that interest as income when you file.
The tax you owe depends on your overall income and tax bracket. Interest is taxed as ordinary income, meaning it is added to your wages, self-employment income, and other earnings, then taxed at your marginal rate. A person in the 22% tax bracket pays roughly 22 cents in federal tax for every dollar of interest earned. State and local income taxes may also apply, depending on where you live.
The key point: you cannot avoid reporting interest by keeping the account open or by splitting money across multiple banks. The IRS tracks it through the 1099-INT your bank files, and the threshold is per person, not per account.
Key Takeaways
- You must report savings account interest of $10 or more on your federal tax return, even if you do not receive a 1099-INT form.
- Your bank reports interest to the IRS on Form 1099-INT, which you receive by January 31 if interest was $10 or higher.
- Interest is taxed as ordinary income at your marginal tax rate, not at a special rate.
- Some accounts, such as Roth IRAs and certain education savings plans, earn interest that is not taxed federally, but regular savings accounts are not among them.
- State and local taxes on savings interest vary by location and may apply even if you owe no federal tax.
How the $10 reporting threshold works
The $10 threshold is a federal reporting rule, not a tax-free threshold. If you earn $5 in interest, you do not file a 1099-INT and do not report it on your return — the IRS does not track it. If you earn $10 or more, your bank must file a 1099-INT with the IRS and send you a copy. You then report that interest on your tax return, and you owe tax on the full amount, including any interest below $10 if you had multiple accounts.
The threshold applies to you as an individual, not per account. If you have three savings accounts at different banks and earn $4 at each one, you report nothing. If you earn $4, $4, and $3 at three accounts, totaling $11, your banks will each file a 1099-INT for their portion, and you report all $11 as income.
Some banks round interest to the nearest dollar on the 1099-INT form. If your actual interest was $10.40, the form may show $10. You report what the form says, not what you calculate yourself.
What Form 1099-INT means and when you receive it
A Form 1099-INT is an information return your bank sends to both you and the IRS. It reports interest paid to you during the calendar year. The form arrives by January 31 of the following year. If you earned $10 or more in interest at a bank, you will receive a 1099-INT from that bank, even if you did not ask for it.
The form shows the account number, the bank's name, and the total interest earned. You use this figure to fill out your tax return. If you lose the form or do not receive it by early February, contact your bank and request a duplicate. You can also log into your online banking portal — many banks post 1099-INT forms there before mailing them.
If you earned less than $10 in interest, you will not receive a 1099-INT. You still owe tax on that interest if you are required to file a return, but you report it based on your own records, not a form.
Tax-advantaged accounts that do not require reporting interest
Certain savings and investment accounts are designed so that interest or earnings grow tax-free. The most common are Roth IRAs, Roth 401(k)s, and 529 education savings plans. Interest earned in these accounts is not reported on your tax return and is not taxed federally. However, a regular savings account at a bank is not tax-advantaged — interest is always taxable.
High-yield savings accounts (HYSAs) are regular savings accounts, not tax-advantaged accounts. They earn higher interest than traditional savings accounts, which means you owe tax on more interest. The higher rate does not change the tax treatment. You still report all interest on Form 1099-INT if it reaches $10.
Money market accounts and certificates of deposit (CDs) also generate taxable interest. A CD held for less than one year reports interest on a 1099-INT. A CD held across two calendar years may report interest on two separate 1099-INT forms, one for each year.
State and local taxes on savings interest
Most states with an income tax also tax savings account interest. The tax rate and rules vary by state. Some states, such as Illinois and Mississippi, do not tax interest income at all. Others, such as California and New York, tax it at the same rate as federal income tax. A few states have special rules — for example, some exempt interest earned by residents over a certain age.
If you live in a state with income tax, you will report the same interest figure on your state return that you reported federally. Your state tax form will ask for interest income, and you enter the amount from your 1099-INT. You may owe state tax even if you owe no federal tax, depending on your income level and state rules.
If you moved during the year, you may owe tax to two states. Contact your state revenue department or a tax preparer to understand your obligation.
What to do if you do not receive a 1099-INT
If you earned $10 or more in interest and your bank did not send you a 1099-INT by early February, contact the bank directly. Ask for a duplicate or a statement showing the interest earned. Most banks can provide this within a few business days.
If the bank cannot locate a 1099-INT or says one was not filed, ask them to file a corrected form with the IRS. This is called a corrected 1099-INT or an amended 1099-INT. The bank files it, and you receive a copy. You then file your tax return using the corrected amount.
If you file your return before receiving the 1099-INT, you can file an amended return later using Form 1040-X. However, it is easier to wait for the form or contact the bank before filing. If the IRS receives a 1099-INT from your bank showing interest you did not report, they will send you a notice and may assess tax and penalties.
How interest income affects your overall tax liability
Savings account interest is added to your other income — wages, self-employment income, capital gains, and so on — to calculate your total taxable income. This total determines your tax bracket and how much tax you owe overall. A person earning $50,000 in wages and $500 in interest pays tax on $50,500.
Interest can push you into a higher tax bracket. If you earn $49,000 in wages and $2,000 in interest, your taxable income is $51,000, which may move you from the 12% bracket to the 22% bracket on the additional income. This is called bracket creep, and it means the interest is taxed at a higher rate than your wages.
Interest can also affect your may be able to access for certain tax deductions and credits. For example, some education credits phase out at higher income levels. If interest pushes your income above the threshold, you may lose part or all of the credit. Review your overall tax situation if you earn significant interest.
Frequently Asked Questions
Do I have to pay taxes on interest if I do not file a tax return?
If you are required to file a return based on your income, you must report interest of $10 or more. If you are not required to file, you do not have to report interest below the filing threshold for your situation. However, if you earned $10 or more in interest, your bank will file a 1099-INT with the IRS, and the IRS may contact you if you do not report it.
Can I deduct losses from my savings account against interest income?
No. Savings accounts do not generate losses — they earn interest or earn nothing. You cannot deduct account fees or foregone interest. Interest income is reported in full, and you cannot offset it with other losses unless those losses are from investments like stocks or bonds.
What if I earned interest but closed the account before the end of the year?
You still owe tax on the interest earned while the account was open. Your bank reports the interest on a 1099-INT based on the calendar year, not on when you closed the account. Closing the account does not change your tax obligation.
Do I report interest from a joint savings account differently?
If the account is jointly owned, the bank may report all interest to one owner or split it between owners, depending on the bank's policy. Check your 1099-INT to see how much interest was reported to you. You report that amount on your return. If the bank reported interest to both owners, you each report your portion.
Is interest from a savings account at a credit union taxed the same way?
Yes. Credit unions are treated the same as banks for tax purposes. Interest earned at a credit union is reported on a 1099-INT if it reaches $10, and you report it as ordinary income on your federal and state returns.