You report savings interest on your tax return, not to your bank
The IRS taxes savings account interest as ordinary income. You do not pay the bank or the IRS directly on the interest itself. Instead, you report the total interest you earned during the year on your federal tax return (Form 1040), and the tax you owe is calculated as part of your overall income tax bill. The bank sends you a record of the interest in January or February on a Form 1099-INT, and you use that form to fill in your tax return.
The amount of tax you owe depends on your total income and tax bracket, not on the interest amount alone. If your savings interest is your only income source, you may owe nothing. If you have wages, self-employment income, or other earnings, the interest is added to that total, and you pay tax on the combined amount.
Key Takeaways
- Banks report savings interest to the IRS on Form 1099-INT, which you receive by January 31 and must report on your tax return.
- You do not make a separate payment for interest tax—the amount owed is calculated when you file your return and is part of your total tax bill.
- Interest under $10 may not appear on a 1099-INT, but you still owe tax on it if you file a return.
- If too much tax was withheld from your interest, you receive a refund when you file; if too little was withheld, you owe the difference.
- High-yield savings accounts and money market accounts report interest the same way as traditional savings accounts.
When the bank sends you a 1099-INT form
Your bank issues a Form 1099-INT for each account that earned $10 or more in interest during the calendar year. The form arrives by January 31 and shows the total interest paid to that account. If you have multiple accounts at the same bank, you may receive one combined form or separate forms depending on how the bank structures its reporting.
You receive a copy in the mail (or email if you enrolled in electronic statements), and the bank also sends a copy to the IRS. This is how the IRS knows you earned the interest. If you do not receive a 1099-INT by early February, contact your bank directly—do not wait until tax time to ask for it.
Interest under $10 does not trigger a 1099-INT, but you still owe tax on it if you file a return. You report it on your tax return using the bank statement or your own records as proof.
How to report the interest on your tax return
On Form 1040 (the main federal income tax form), you report interest income on Line 1b under "Income." If you use tax software, it will ask you to enter the interest amount from your 1099-INT forms, and the software fills in the line automatically. If you file by hand, you add up all interest from all your accounts and write the total on Line 1b.
The interest is added to your other income (wages, self-employment, capital gains, and so on) to calculate your total taxable income. Your tax bracket determines what percentage of that total you owe in federal tax. For example, if you earned $50,000 in wages and $500 in savings interest, you owe federal tax on $50,500.
State income tax works the same way. Most states tax interest as ordinary income and require you to report it on your state return. A few states (like Illinois and Mississippi) do not tax interest income at all. Check your state's tax authority website to confirm whether your state taxes savings interest.
What happens if tax was withheld from your interest
Banks do not normally withhold tax from savings interest. However, if you did not provide a valid Social Security number or tax ID to your bank, the bank may be required to withhold 24% of the interest and send it to the IRS. This is called backup withholding.
If backup withholding occurred, the 1099-INT will show the amount withheld in Box 4. When you file your return, that withheld amount is credited against your total tax bill. If the withholding was more than you owe, you receive a refund. If it was less, you owe the difference.
To stop backup withholding, provide your bank with a valid Social Security number or tax ID and a completed Form W-9. Once the bank has this on file, withholding should stop for future interest payments.
Interest from high-yield and money market accounts
High-yield savings accounts and money market accounts report interest the same way as traditional savings accounts. You receive a 1099-INT for any account that earned $10 or more, and you report the total on your tax return. The interest rate is higher than a traditional account, which means the tax bill is also higher, but the reporting process is identical.
Some online banks and credit unions issue 1099-INTs monthly or quarterly instead of annually. If your bank does this, you will receive multiple forms for the same year. Add up the interest from all of them and report the total on Line 1b of your Form 1040.
Reporting interest if you did not receive a 1099-INT
If you earned less than $10 in interest, your bank will not send a 1099-INT. You still owe tax on that interest if you file a return. Use your bank statements or a year-end summary from your online banking portal to calculate the total, and report it on Line 1b of Form 1040.
If you earned $10 or more and did not receive a 1099-INT by early February, contact your bank. Provide your account number and ask them to reissue the form or confirm they sent it. If the bank confirms it was mailed and you still do not receive it after two weeks, ask the bank to send a duplicate electronically.
Do not skip reporting interest just because you did not receive a 1099-INT. The IRS has a copy of the form (the bank sent one), and if your return does not match, you may receive a notice asking you to explain the difference.
How interest affects your overall tax bill
Interest income is taxed at your marginal tax rate—the rate that applies to your highest dollar of income. If you are in the 22% federal tax bracket, each dollar of interest is taxed at 22%. If you are in the 12% bracket, it is taxed at 12%.
Interest can also push you into a higher tax bracket. If you earned $45,000 in wages and are close to the edge of the 22% bracket, adding $1,000 in interest might move some of your income into the 24% bracket. Tax software calculates this automatically when you enter your interest income.
Interest may also affect whether you owe the Alternative Minimum Tax (AMT) or whether you remain under the threshold for certain tax credits. These are rare situations, but they are another reason to report all interest, even small amounts.
Frequently Asked Questions
Do I have to pay taxes on savings interest if I do not file a tax return?
If your total income (including interest) is below the filing threshold for your age and filing status, you do not have to file. However, if you had taxes withheld from the interest (backup withholding), you may want to file to get a refund. Check the IRS website for current filing thresholds based on your situation.
What if I earned interest in two different states?
Report all interest on your federal return. For state taxes, report interest to the state where you lived when you earned it. If you moved during the year, you may owe tax to two states; check each state's rules on how to report part-year income.
Can I deduct anything against my savings interest?
No. Interest income cannot be reduced by investment expenses or losses on your personal tax return. If you have investment losses, they can offset investment gains, but not interest income.
What if my bank sent me a 1099-INT with the wrong amount?
Contact your bank immediately and ask them to issue a corrected Form 1099-INT (marked as a correction). The bank will send the corrected form to you and the IRS. File your tax return using the corrected amount. If you already filed using the wrong amount, you can file an amended return (Form 1040-X) once you receive the correction.
Do I report interest from a joint savings account differently?
If the account is jointly owned, the bank reports the full interest amount on a single 1099-INT. You and the other owner must decide how to split the income for tax purposes—usually 50/50, but you can split it differently if you have a written agreement. Each owner reports their share on their own tax return.