You pay federal income tax on the interest your savings account earns, but not on the money you deposit
The money you put into a savings account is not taxable — that is your own money. But the interest the bank pays you on that balance is income, and the IRS treats it like any other income you receive. You report it on your tax return, and depending on how much interest you earned and your total income, you may owe federal tax on it.
Most savings accounts earn very little interest, so many people owe no tax on it. But if you have a high-yield savings account, a certificate of deposit (CD), or a money market account, the interest can add up quickly — especially in recent years when interest rates have been higher. The bank will send you a form showing how much interest you earned, and you use that number when you file your taxes.
Some states also tax savings account interest, though the rules vary. A few states do not tax interest income at all, while others tax it the same way the federal government does.
Key Takeaways
- Interest earned on savings accounts, CDs, and money market accounts counts as taxable income to the IRS and must be reported on your federal tax return.
- Your bank will send you a Form 1099-INT if you earned $10 or more in interest during the year, though you may owe tax on smaller amounts too.
- The amount of tax you owe depends on your total income and tax bracket, not just the interest amount.
- Some states do not tax interest income, while others tax it at the state income tax rate; check your state's rules.
- You can reduce taxable interest by holding tax-advantaged accounts like IRAs or 529 plans, where interest grows without annual tax reporting.
How the IRS counts savings account interest as income
The IRS considers interest income to be ordinary income, the same category as wages or salary. This means it is added to your total income for the year, and you pay tax on it at your regular tax rate. If you are in the 22% tax bracket and earn $500 in savings account interest, you will owe roughly $110 in federal tax on that interest (before any deductions or credits).
The tax you owe is not a flat percentage — it depends on your tax bracket, which is determined by your total income. A person earning $30,000 a year will pay a lower rate on interest income than someone earning $150,000. This is why two people with the same savings account interest might owe different amounts of tax.
Interest is taxed in the year you earn it, not when you withdraw the money. If your savings account earned $200 in interest during 2024, you report that $200 on your 2024 tax return, even if you do not touch the money until 2025.
When your bank sends you a Form 1099-INT
Banks report interest income to the IRS using a Form 1099-INT. Your bank must send you this form if you earned $10 or more in interest during the calendar year. You will receive it by January 31 of the following year.
The form shows the total interest paid to you and the account number. You use the interest amount from this form when you fill out your tax return. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one, and you add all the interest amounts together.
Even if you do not receive a 1099-INT because your interest was under $10, you are still required to report that interest on your tax return. The IRS knows about it because banks report all interest to them, and your return should match what they have on file.
State taxes on savings account interest
Nine states do not tax income at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (though New Hampshire taxes interest and dividend income specifically). If you live in one of these states, you owe no state tax on your savings account interest.
Most other states tax interest income at their regular state income tax rate. Some states offer small deductions or exemptions for interest earned by residents over age 65, but the rules vary widely. A few states, like Illinois, do not tax interest income but do tax other types of income.
You will need to check your state's tax rules or speak with a tax preparer who knows your state's law. State tax forms often ask for interest income separately, so the amount from your 1099-INT will appear on both your federal and state returns.
How much interest triggers a tax bill
There is no minimum amount of interest that automatically triggers a tax bill. Instead, whether you owe tax depends on your total income and filing status. For 2024, a single person with no other income does not owe federal tax unless their income exceeds $14,600. If you earned $500 in interest and had no other income, you would not owe federal tax.
But if you have a job or other income, the interest is added to that total. A person earning $50,000 in wages plus $1,000 in interest has $51,000 in total income, and the interest is taxed at their regular rate.
The standard deduction changes each year and depends on your age and filing status. You can find the current year's standard deduction on the IRS website or on your tax software. If your total income is below the standard deduction for your situation, you owe no federal tax, even if you earned interest.
Tax-advantaged accounts that avoid annual interest reporting
If you want to save money without reporting interest income every year, you can use certain tax-advantaged accounts. A traditional IRA or 401(k) allows interest to grow without triggering annual tax reporting. You do not pay tax on the interest until you withdraw the money in retirement.
A Roth IRA is even better: interest grows tax-free, and you pay no tax on it when you withdraw it in retirement, as long as you follow the rules. A 529 education savings plan works the same way for money saved for college — interest grows tax-free if you use it for education expenses.
These accounts have contribution limits and withdrawal rules, so they are not right for all situations. But if you have money you do not need for several years, moving it to one of these accounts can save you money on taxes.
What to do if you did not receive a 1099-INT
If you earned interest but did not receive a 1099-INT by early February, contact your bank and ask for it. Banks sometimes mail them late, or they may have sent it to an old address if you moved.
If your bank says they did not send one because your interest was under $10, you still need to report that interest on your tax return. Write down the amount from your account statements and include it when you file.
If you cannot get the exact amount from your bank, use your account statements to add up the interest deposits for the year. The IRS has a record of what your bank reported, so your return should match or be higher than what they have on file — never lower.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. Banks only send a 1099-INT for $10 or more, but you must report all interest income on your tax return, even if it is $1. The IRS knows about it from your bank's records, and your return should match.
Can I deduct savings account interest as a loss?
No. Interest income cannot be deducted or offset against other income. You report it as income, and it is taxed at your regular rate. You cannot claim a loss on interest you earned.
What if I have interest from a joint savings account?
The bank will report the full interest amount on a 1099-INT. If the account is truly joint and both owners contributed equally, you and the other owner should each report half the interest on your separate tax returns. Keep documentation showing the split in case the IRS asks.
Do I owe tax on interest if I am a dependent?
Yes, you still owe tax on interest income even if someone else claims you as a dependent. Your interest is added to your income, and you file your own return if your total income exceeds the standard deduction for dependents (which is usually higher than for other filers).
Is interest from a money market account taxed the same way as a savings account?
Yes. Money market accounts, CDs, and regular savings accounts all earn interest that is taxed as ordinary income. The bank reports it on a 1099-INT, and you report it on your tax return the same way.