Savings account interest counts as taxable income

Yes, you owe federal income tax on the interest your savings account earns. The IRS treats it as ordinary income, taxed at your regular income tax rate. If you earned $50 in interest over the year, that $50 gets added to your other income when you file your tax return. Your bank will report what you earned on a Form 1099-INT, and you report it on your tax return.

Most savings accounts earn very little interest, so many people owe no tax on it because their total income stays below the threshold where they would owe anything. But the interest is still taxable whether you owe tax or not — you still have to report it.

State and local income taxes also apply to savings interest in most states. A few states (like Florida, Texas, and Wyoming) have no state income tax, so residents there owe only federal tax. Others tax it the same way the federal government does.

Key Takeaways

  • Savings account interest is taxable income at the federal level and in most states, even if the amount is small.
  • Your bank sends you a Form 1099-INT if you earned $10 or more in interest during the year, and you report that amount on your tax return.
  • The tax you owe depends on your total income and tax bracket, not just the interest amount.
  • High-yield savings accounts earn more interest than traditional savings accounts, which means more taxable income and potentially more tax owed.

When your bank reports interest to the IRS

Your bank issues a Form 1099-INT when you earn $10 or more in interest during a calendar year. The bank sends one copy to you and another to the IRS. You should receive it by January 31 of the following year.

If you earned less than $10, your bank may not send you a 1099-INT, but the interest is still taxable. You still need to report it on your return if you file one. Keep your bank statements as proof of what you earned.

The 1099-INT shows the total interest earned in box 1. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. Add them all together when you report your income.

How interest income affects your tax bracket

Interest income stacks on top of your other income — wages, self-employment income, investment gains, and anything else you report. If you earned $45,000 in wages and $500 in savings interest, your taxable income is $45,500. That extra $500 might push you into a higher tax bracket, or it might not, depending on where you started.

The tax brackets change every year. For 2024, a single filer pays 10% on income up to $11,600, then 12% on income from $11,601 to $47,150, and so on. If your interest income pushes you from the 10% bracket into the 12% bracket, only the amount over the line is taxed at 12%.

If your total income is very low, you might not owe any federal income tax at all, even with the interest included. The standard deduction (the amount you can earn tax-free) was $13,850 for single filers in 2024. But you still have to file and report the interest if your bank sent you a 1099-INT.

High-yield savings accounts and tax consequences

High-yield savings accounts pay significantly more interest than traditional savings accounts — sometimes 4% to 5% annually instead of 0.01%. That means more money in your account, but also more taxable income. If you have $10,000 in a high-yield account earning 4.5%, you earn $450 in interest per year, all of which is taxable.

The higher interest is still worth it for most people because the after-tax earnings are better than a traditional account. But you should expect to owe tax on it. Some people move money to high-yield accounts late in the year to avoid a big tax bill, but interest accrues daily, so timing matters less than the total balance and rate.

Money market accounts work the same way — interest earned is taxable income reported on a 1099-INT.

Reporting interest on your tax return

On the federal level, 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 less, you can report it directly on Form 1040, line 8a. Your tax software will walk you through this.

You enter the total interest from all your 1099-INT forms. If you earned interest but did not receive a 1099-INT (because it was under $10), you still report it. Write "Other" or the bank name and the amount.

State tax returns vary. Some states use a similar schedule; others have a different form. Check your state's tax agency website for the specific form and line number.

What to do if you lost your 1099-INT

If your bank sent a 1099-INT to the IRS but you did not receive a copy, contact the bank and ask for a duplicate. Most banks can email or mail one within a few business days. Do this before you file your return.

If you cannot get a duplicate and the deadline is near, you can still file using your bank statements as proof. Report the interest amount on your return and keep the statements in case the IRS asks. The IRS already has a copy from the bank, so your numbers should match.

If you filed without reporting interest that the IRS has on record, the IRS will send you a notice. You can amend your return using Form 1040-X (Amended U.S. Individual Income Tax Return) to add the income and pay any tax owed plus interest.

Interest on joint accounts and inherited accounts

If you own a savings account jointly with someone else, the bank may split the interest between you on separate 1099-INTs, or it may report all of it to one person. Check with your bank about how they handle it. You and the other owner need to report your actual share of the interest, even if the 1099-INT shows a different split.

If you inherited a savings account, interest earned after the person's death is taxable to the estate or to you, depending on when you received the account. The bank will issue a 1099-INT for the interest earned during the year. Inherited account rules are complex — if the account has a large balance, talk to a tax professional.

Frequently Asked Questions

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

Yes, if you file a tax return. The bank does not have to send you a 1099-INT for amounts under $10, but the interest is still taxable. Report it on your return using your bank statements as proof.

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

No. You report the gross interest your bank paid you. Fees are not deductible against interest income on your personal return. Some business accounts have different rules, but for personal savings accounts, you report the full amount.

What if I moved money between banks during the year?

Each bank reports only the interest earned on money in their account. If you had $5,000 in Bank A earning 2% for six months, then moved it to Bank B earning 4% for six months, Bank A reports interest on the first half and Bank B on the second half. Add both 1099-INTs together on your return.

Does interest on a CD count as taxable income?

Yes. Certificate of Deposit interest is reported on a 1099-INT just like savings account interest. You owe tax on it even if you have not withdrawn the money yet. Some CDs penalize you for early withdrawal, but the interest is still taxable in the year it was earned.

What if my savings account is in a child's name?

The child is responsible for reporting the interest, even if a parent controls the account. If the child's income is low enough, they may not owe tax, but they still have to file and report it. The bank sends the 1099-INT to the child's Social Security number.