Yes, you pay income tax on savings account interest

The interest your bank pays you on a savings account counts as taxable income. The IRS treats it the same way it treats wages or salary — you owe federal income tax on the full amount. Most banks will send you a Form 1099-INT in January showing how much interest you earned during the previous year, and you report that number on your tax return.

The tax rate you pay depends on your overall income and tax bracket, not on the interest amount itself. If you earned $50 in interest and you are in the 22% tax bracket, you do not automatically pay 22% on that $50. Instead, the $50 gets added to your total income, and you pay tax at whatever rate applies to your full income picture.

State income tax also applies to savings interest in most states. A few states — including Florida, Texas, and Wyoming — do not have state income tax at all. Others tax interest at the state level but exempt it for residents over a certain age or with income below a threshold. Check your state's tax website or a tax professional to learn what applies where you live.

Key Takeaways

  • Banks report savings interest to the IRS on Form 1099-INT, and you must report it on your federal tax return.
  • The tax you owe is based on your total income and tax bracket, not a flat percentage of the interest itself.
  • Most states tax savings interest as income, though a handful do not have state income tax.
  • You typically do not owe tax on interest under $10, because banks are not required to issue a 1099-INT below that threshold, though you may still owe it.
  • High-yield savings accounts earn more interest but are taxed the same way as regular savings accounts.

When you receive the Form 1099-INT from your bank

Your bank sends 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 account if you hold multiple savings accounts at the same bank.

You receive one copy in the mail and the bank sends a copy to the IRS. When you file your tax return, you report the interest amount from Box 1 of the 1099-INT on Schedule 1 (Form 1040), which feeds into your total income. If you have multiple 1099-INTs from different banks, you add all the interest together and report the total.

If you did not receive a 1099-INT but earned interest, you still owe tax on it. The $10 threshold is only when the bank must issue the form — it does not mean interest below $10 is tax-free. Check your bank statements or online account history to find the exact interest earned and report it yourself.

How interest stacks with other income to determine your tax rate

Savings interest is ordinary income, meaning it gets added to wages, self-employment income, and other sources before the IRS calculates your tax. If you earned $45,000 in wages and $200 in savings interest, your taxable income is $45,200. The tax on that $200 is whatever your marginal rate is at that income level.

For 2024, the federal tax brackets for single filers start at 10% on income up to $11,600, then jump to 12% from $11,601 to $47,150, and so on. If you are in the 12% bracket, the $200 in interest gets taxed at 12%, meaning you owe $24 in federal tax on it. If you are in the 22% bracket, you owe $44.

This is why the actual tax on interest varies so much from person to person. Two people earning the same $200 in interest can owe different amounts depending on their total income. Someone with no other income might owe nothing (because the standard deduction covers it), while someone with high wages pays at their top rate.

The difference between high-yield and regular savings accounts for tax purposes

A high-yield savings account earns more interest than a regular savings account — sometimes 4% to 5% annually compared to 0.01% or less at traditional banks. But the tax treatment is identical. Whatever interest you earn, whether it is $2 or $200, gets reported on a 1099-INT and taxed as ordinary income.

The higher earnings do mean higher taxes, but they also mean more money in your account after tax. If you earn $500 in interest at a high-yield rate and owe $110 in tax (at 22%), you still have $390 more than you started with. The tax is a cost of earning the interest, not a reason to avoid high-yield accounts.

Money market accounts and certificates of deposit (CDs) follow the same rule. Any interest they generate is taxable income and will appear on a 1099-INT.

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

If you earned less than $10 in interest, your bank is not required to send a 1099-INT. You still owe tax on it, but you will not receive a form. Log into your bank account online or request a statement showing the interest paid, then report that amount on your tax return under interest income.

If you earned $10 or more and did not receive a 1099-INT by early February, contact your bank. Ask them to reissue it or confirm the interest amount so you can report it. If the bank cannot locate the form, you can still file your return with the interest amount you found in your statements — the IRS will match it against the bank's records eventually.

If you moved during the year or changed your address with the bank after interest was earned, the 1099-INT may have been mailed to an old address. Check with your bank to see if they have a current address on file and ask them to send a replacement.

State taxes on savings interest

Most states tax interest income the same way the federal government does — as ordinary income added to your total. The state tax rate depends on your state's brackets and your income level, similar to federal tax.

Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, but many residents are exempt). If you live in one of these states, you owe federal tax on savings interest but no state tax.

Some states offer exemptions for residents over 65 or with income below a certain level. Illinois, for example, does not tax interest and dividend income at all. Check your state's Department of Revenue website or a tax professional to learn the rules where you live.

Frequently Asked Questions

Do I have to report savings interest if it is less than $10?

Yes. The $10 threshold only determines whether your bank must send a 1099-INT form — it does not make interest below that amount tax-free. You still owe tax on any interest you earn. Report it on your return using your bank statement as proof.

What if I have savings at multiple banks?

You will receive a separate 1099-INT from each bank if you earned $10 or more at that bank. Add all the interest amounts together and report the total on your tax return. The IRS receives copies from all your banks, so they will know the total anyway.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount on your tax return. Savings account fees are not deductible. However, if your bank charged you a fee that reduced your interest below what you actually earned, the 1099-INT should reflect the net amount after the fee.

Does a joint savings account change how the interest is taxed?

The interest is still taxable income, but how it is split between account holders depends on your ownership agreement and state law. The bank may issue one 1099-INT to one owner, or split it between both. Whoever receives the form must report it, or you and the other owner must agree on how to split the income and each report your portion.

What if I earned interest but the bank closed my account?

The bank still owes you a 1099-INT if you earned $10 or more during the year, even if the account is closed. They will mail it to the address on file. If you do not receive it, contact the bank's customer service and ask them to reissue it or confirm the interest amount.