Savings account interest is 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 — not at a lower capital gains rate. If you earned $50 in interest last year, that $50 counts toward your total taxable income for the year, the same way wages do.
Most banks and credit unions will send you a Form 1099-INT by January 31 each year if you earned $10 or more in interest during that year. Some banks use a slightly different form called 1099-OID for certain types of accounts. You report the amount shown on that form on your federal tax return, and you may also owe state income tax on it, depending on where you live.
The tax you owe depends on your total income and tax bracket, not on the interest amount itself. If you earned $100 in interest but are in the 22% tax bracket, you will owe roughly $22 in federal tax on that interest — but the exact amount depends on whether that interest pushes you into a higher bracket or reduces a credit you were claiming.
Key Takeaways
- Savings account interest is taxed as ordinary income at your regular federal tax rate, and you must report it on your tax return if you earned $10 or more.
- Your bank will send you a Form 1099-INT by January 31 if you earned $10 or more in interest during the year.
- You report the interest amount on Schedule 1 (Form 1040) or on the appropriate line of your state tax return if your state has an income tax.
- High-yield savings accounts earn more interest than traditional savings accounts, which means you will owe more tax on the interest, even though the account itself is still tax-free.
- If you did not receive a 1099-INT but earned interest, you still must report it on your tax return.
When the bank sends you a 1099-INT form
Your bank is required to send you a Form 1099-INT if you earned $10 or more in interest during the calendar year. The form arrives by January 31 and shows the total interest paid to you in Box 1. You will receive one form per account if you have multiple accounts at the same bank, or one form if the bank combines all your accounts.
If you earned less than $10 in interest, the bank does not have to send you a form, but you still owe tax on that interest if you file a return. Some banks send forms anyway as a courtesy, and some do not. Either way, you can find your interest earnings in your account statements or by logging into your online banking portal.
The bank also sends a copy of the 1099-INT to the IRS, so the IRS knows you earned that interest. If you do not report it on your return and the IRS notices the mismatch, you may face a penalty and interest charges on the unpaid tax.
How to report interest on your tax return
On your federal return, you report savings account interest on Schedule 1 (Form 1040), which is an attachment to the main 1040 form. The line is labeled "Interest" and you enter the total amount from all your 1099-INT forms. If you use tax software, it will usually ask you to enter the amount and place it in the right spot automatically.
If you are filing by hand, add up all the interest from all your 1099-INT forms and write the total on the Interest line of Schedule 1. Then transfer that total to the main 1040 form where it says "Interest" in the income section. The interest gets added to your other income (wages, self-employment income, and so on) to calculate your total taxable income.
For state taxes, the process varies. Some states follow the federal rule and tax all interest as ordinary income. Others have different thresholds or exemptions. Check your state's tax form instructions or contact your state tax agency to see where to report interest on your state return.
The difference between high-yield and traditional savings accounts
A high-yield savings account earns more interest than a traditional savings account — sometimes 4% to 5% per year, compared to 0.01% or less at a traditional bank. That higher interest is good for your savings, but it also means you will owe more tax on the interest you earn.
The tax treatment is identical: both types of interest are taxed as ordinary income. The only difference is the amount. If you earn $500 in interest from a high-yield account instead of $5 from a traditional account, you will owe tax on $500 instead of $5. At a 22% tax rate, that is roughly $110 in tax instead of $1.
High-yield accounts are still worth using if you have money sitting idle, because the extra interest usually outweighs the extra tax. But it is worth knowing that the higher earnings come with a higher tax bill.
What to do if you did not receive a 1099-INT
If you earned $10 or more in interest but did not receive a 1099-INT by early February, contact your bank. Ask whether they sent it to an old address or whether they are still processing it. Most banks will resend it or provide a copy within a few business days.
If the bank confirms they sent one and you still cannot find it, you can file your return without it — but you must still report the interest amount. Check your account statements or your online banking portal to find the total interest earned. Write that amount on your return and keep your statements in case the IRS asks for proof later.
If you earned less than $10 and did not receive a form, you still owe tax on the interest if you file a return. Find the amount in your statements and report it anyway. The IRS may not know about it if the bank did not report it, but you are still legally required to report all income.
Interest earned in joint accounts and accounts for minors
If you have a joint savings account, the bank will send a 1099-INT to the person whose Social Security number is listed first on the account. That person is responsible for reporting all the interest on their tax return, even if the other account holder contributed equally. You and your co-owner should decide between yourselves how to split the tax burden, but the IRS only sees one name on the form.
If you opened a savings account for a minor child, the interest is taxable income to the child, not to you. The bank will send a 1099-INT in the child's name. The child (or their parent, if filing on their behalf) must report the interest on the child's tax return. Some children do not have to file a return if their interest and other income fall below the filing threshold, but you should check the IRS rules for the current year.
Frequently Asked Questions
Do I owe taxes on interest if I only earned a few dollars?
Yes, all interest is taxable income, even if it is only a few dollars. However, you only have to file a tax return if your total income exceeds the filing threshold for your age and filing status. If your only income is $50 in interest and you are not required to file, you do not have to report it — but if you do file for any reason, you must include it.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount shown on the 1099-INT, and you cannot subtract fees or other costs. The interest is income, and fees are a separate expense. In some cases, investment-related fees may be deductible, but ordinary savings account fees are not.
What if my bank made a mistake on the 1099-INT?
Contact your bank and ask them to issue a corrected form, called a 1099-INT with a "CORRECTED" label. Once you receive it, file an amended return (Form 1040-X) with the correct amount. Send a copy of the corrected 1099-INT with your amended return so the IRS knows why the numbers changed.
Do I owe taxes on interest if I moved to a different state during the year?
You may owe tax to both states, depending on their rules. Some states tax all income earned while you lived there, and some tax based on where you lived when the interest was paid. Check both states' tax forms or contact their tax agencies to see what you owe.
Is interest from a money market account taxed the same way?
Yes. Money market accounts, certificates of deposit (CDs), and most other savings products earn interest that is taxed as ordinary income. The bank will send you a 1099-INT if you earned $10 or more, and you report it the same way as savings account interest.