Yes, you report all savings account interest as income on your federal tax return
The IRS requires you to report every dollar of interest your savings account earns, no matter how small. Interest is taxable income in the year you receive it or it is credited to your account — whichever comes first. Your bank will send you a Form 1099-INT in January if you earned $10 or more in interest during the previous year, but you must report interest even if you do not receive a 1099-INT.
You report this interest on Schedule B (Interest and Ordinary Dividends) if you have more than $1,500 in total interest and dividends for the year. If you have $1,500 or less, you can report the interest directly on line 2b of your Form 1040. State taxes also require you to report savings interest in most cases, though a few states do not tax interest income.
The amount you owe in tax depends on your total income and tax bracket. A person in the 22% tax bracket who earns $500 in savings interest will owe roughly $110 in federal tax on that interest alone. Someone in the 12% bracket will owe about $60. The tax is the same whether the interest comes from a regular savings account, a money market account, or a certificate of deposit (CD).
Key Takeaways
- Report all savings account interest on your federal tax return, even if your bank does not send you a 1099-INT form.
- Your bank mails Form 1099-INT in January if you earned $10 or more in interest during the year, and you receive a copy for your records.
- Interest under $1,500 goes directly on line 2b of Form 1040; interest over $1,500 requires Schedule B.
- The tax you owe on interest depends on your tax bracket, and state income tax usually applies as well.
- Interest is taxable in the year it is earned or credited, not when you withdraw the money.
How to find the interest amount your bank reported
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 total interest in Box 1. You receive two copies — one to file with your tax return and one for your records. If you have accounts at multiple banks, you will receive a separate 1099-INT from each one.
Check the 1099-INT against your own records. Add up the interest deposits shown in your account statements for the full year and compare it to Box 1 on the form. Banks occasionally make errors, and you need to catch them before you file. If the amount is wrong, contact your bank and ask for a corrected form (a 1099-INT with "CORRECTED" printed on it).
If you earned less than $10 in interest, your bank will not send a 1099-INT, but you still must report the interest. Look at your year-end account statement or add up the monthly interest deposits from your statements. This is your reportable amount.
What happens if you do not report the interest
The IRS receives a copy of every 1099-INT your bank files. If you do not report the interest on your return, the IRS will notice the mismatch between what your bank reported and what you filed. The agency may send you a notice of deficiency, which is a bill for the unpaid tax plus interest and penalties.
The penalty for not reporting income is usually 20% of the unpaid tax, though it can be higher if the IRS determines the omission was fraudulent. Interest accrues on the unpaid tax from the original due date of your return. A $500 reporting error that goes unnoticed for three years can cost you $200 in penalties plus $50 to $100 in interest charges.
If you discover you missed reporting interest in a prior year, you can file an amended return (Form 1040-X) for that year. Filing an amendment yourself before the IRS contacts you shows good faith and may reduce penalties. The IRS has a statute of limitations of three years to assess tax on unreported income, though it can go back six years if you underreported income by 25% or more.
Reporting interest when you have multiple accounts or banks
Add up the interest from all your savings accounts, money market accounts, and CDs. Each bank sends its own 1099-INT, but you combine all the interest on a single line of your tax return. If you have $200 in interest from Bank A and $150 from Bank B, you report $350 total.
Keep all your 1099-INT forms together with your tax records. If the IRS ever questions your return, you will need to show that you reported all the forms you received. Some people use a spreadsheet to track interest from each account, which makes it easier to spot errors and to prepare your return.
If one of your banks goes out of business or is acquired by another bank, you may still receive a 1099-INT from the original bank for interest earned before the change. Report it as you normally would. The acquiring bank will send a separate 1099-INT for interest earned after the acquisition.
Interest from joint accounts and accounts held in trust
If you own a savings account jointly with another person, the bank reports all the interest to both account holders on separate 1099-INT forms. You and the other owner each receive a form showing the full interest amount. You must coordinate with the other owner to report only your share of the interest on your return.
For example, if a joint account earned $400 in interest and you and your spouse own it equally, you each report $200. If you own 60% and your spouse owns 40%, you report $240 and your spouse reports $160. The bank does not split the interest on the 1099-INT — it sends the full amount to each owner, so you have to do the math yourself.
If the account is held in a trust, the trustee may report the interest to the trust's tax ID number rather than to individual beneficiaries. In that case, the trust files its own tax return and reports the interest. You would not report the interest on your personal return unless the trust distributes it to you, in which case you report your share of the distribution.
State income tax reporting for savings interest
Most states tax savings account interest as ordinary income. You report it on your state return using the same amount from your federal return. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all, so you do not file a state return.
New Hampshire and Tennessee tax only interest and dividend income, not wages or other income. If you live in one of these states, you must report your savings interest on the state return even if you have no other income to report. The state tax rate varies; New Hampshire taxes interest at 5%, while Tennessee taxes it at 1%.
Some states offer a deduction or exemption for a small amount of interest income. For example, some states allow you to exclude the first $50 or $100 of interest per year. Check your state's tax instructions or contact your state revenue department to learn whether your state has such a deduction.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold only determines whether your bank sends you a 1099-INT form. You must report all interest income on your tax return, regardless of the amount. If you earned $5 in interest, you report $5.
What if my 1099-INT shows the wrong amount?
Contact your bank immediately and ask for a corrected form. The bank will issue a 1099-INT marked "CORRECTED" and file it with the IRS. You should receive the corrected form within 30 days. File your tax return using the corrected amount.
Can I deduct the taxes I pay on savings interest?
No. Interest income is taxable, and you cannot deduct the tax you owe on it. However, if you paid investment fees to earn the interest, those fees may be deductible under certain circumstances — consult a tax professional about your specific situation.
What if I moved during the year and my 1099-INT went to the wrong address?
Contact your bank and provide your current address. The bank can reissue the form or confirm the interest amount so you can report it. You can also call the IRS at 800-829-1040 to report a missing 1099-INT, and the agency can help you track it down.
Does interest from a high-yield savings account get reported differently?
No. High-yield savings accounts, regular savings accounts, and money market accounts all report interest on Form 1099-INT and are taxed the same way. The only difference is the amount of interest earned, which is higher with high-yield accounts.