The tax rate on your savings interest depends on your total income and tax bracket
Savings account interest is taxed as ordinary income, which means it is taxed at the same rate as your wages or salary. The amount you owe depends on your tax bracket for the year — not on the interest amount alone. If you earned $50,000 in wages and $500 in savings interest, that $500 is added to your $50,000 and taxed at whatever bracket your total income falls into.
The federal tax brackets for 2024 range from 10% to 37%, depending on how much total income you have and whether you file as single, married filing jointly, or another status. A person in the 22% bracket pays 22% on that savings interest. A person in the 12% bracket pays 12%. Your bank does not withhold tax on savings interest — you owe it when you file your tax return.
Some states also tax savings interest as income. A few states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not have a state income tax at all. Others tax it at rates ranging from roughly 1% to 13%, depending on the state and your income level there.
Key Takeaways
- Savings interest is taxed as ordinary income at your federal tax bracket rate, which ranges from 10% to 37% depending on your total income for the year.
- Your bank reports the interest you earned on Form 1099-INT, and you report it on your tax return — no tax is automatically withheld from the interest itself.
- Most states tax savings interest as income, though eight states have no state income tax at all.
- You only owe tax on interest if your total income exceeds the standard deduction for your filing status, though your bank will still report it.
How your tax bracket determines what you pay
Your tax bracket is determined by your total taxable income for the year. This includes wages, self-employment income, investment gains, and interest. The brackets themselves are set by the IRS and change each year. For 2024, a single filer in the 22% bracket has taxable income between roughly $11,600 and $47,150. A married couple filing jointly in the 22% bracket has taxable income between roughly $23,200 and $94,300.
The key point: you do not pay tax on savings interest in isolation. If you earned $45,000 in wages and $1,200 in savings interest, your taxable income is $46,200. That entire amount is taxed according to the brackets for your filing status. The last dollars of that $46,200 — which include your $1,200 in interest — are taxed at whatever rate applies to that income level.
This is why the same $1,200 in interest costs different people different amounts. A retiree with only $30,000 in total income might be in the 12% bracket and owe $144 in federal tax on that interest. A person with $100,000 in total income might be in the 24% bracket and owe $288 on the same $1,200.
State taxes on savings interest vary widely
Eight states do not tax income at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state tax on your savings interest — only federal tax.
The remaining 42 states and the District of Columbia tax savings interest as ordinary income. The rates vary. Some states have a flat tax rate — Illinois taxes all income at 4.95%, for example. Others use brackets similar to the federal system. California's top rate is 13.3%. New York's top rate is 10.9%. Louisiana's top rate is 6%. The rate you pay depends on your state and your income level within that state.
If you live in a state with income tax and move during the year, you may owe tax to both states on a portion of your interest. The rules for this vary by state. Your state tax return instructions will tell you whether you need to report income earned while you were a resident.
When you report interest and how banks report it to the IRS
Your bank sends you a Form 1099-INT by January 31 each year if you earned $10 or more in interest during the previous year. This form shows the total interest you earned in that account. The bank also sends a copy to the IRS.
You report this interest on your federal tax return. If you file Form 1040, interest income goes on Schedule 1, line 8a. If you use tax software, it will prompt you to enter the amount from your 1099-INT. If you file by hand, you write the amount on the appropriate line of your return.
You must report all interest income, even if you did not receive a 1099-INT. If you earned less than $10 in interest, the bank may not send you a form, but you still owe tax on it. Keep your own records of any interest your bank paid you.
Interest from different account types and investment accounts
Interest from a regular savings account, money market account, or certificate of deposit (CD) is all taxed the same way — as ordinary income at your tax bracket rate. The account type does not matter for tax purposes.
Interest from a traditional IRA or 401(k) is not taxed when you earn it. You pay tax on withdrawals from these accounts later, usually in retirement. Interest from a Roth IRA is not taxed at all, as long as you follow the withdrawal rules.
Interest from a 529 education savings plan is not taxed if you use the money for may have access to education expenses. Interest from a Health Savings Account (HSA) is not taxed if you use it for medical expenses. These accounts have special tax treatment that regular savings accounts do not have.
What happens if your income is below the standard deduction
If your total income is below the standard deduction for your filing status, you do not owe federal income tax — even if you earned interest. For 2024, the standard deduction is $14,600 for a single filer and $29,200 for a married couple filing jointly. These amounts change each year.
However, your bank still reports the interest to the IRS on Form 1099-INT. You may still need to file a tax return to claim refundable tax credits, such as the Earned Income Tax Credit. Check the IRS website or use free tax software to determine whether you must file.
State tax rules are different. Some states have their own standard deduction or exemption. Even if you owe no federal tax, you may owe state tax on your interest. Check your state's tax agency website for the rules in your state.
How high-yield savings accounts affect your tax bill
High-yield savings accounts pay more interest than traditional savings accounts — sometimes 4% to 5% annually, compared to 0.01% or less at many large banks. This higher interest is still taxed as ordinary income at your tax bracket rate. The only difference is that you earn more interest, so you owe more tax on it.
If you earned $2,000 in interest from a high-yield account and you are in the 24% tax bracket, you owe roughly $480 in federal tax on that interest. The same $2,000 in a traditional savings account earning 0.5% would generate only $100 in interest and $24 in tax. The higher yield is worth it for most people, but the tax bill is real.
Some people move money between high-yield accounts to chase the highest rates. Each account sends a separate 1099-INT, and you report all of them. The total interest from all your accounts is added together and taxed at your bracket rate.
Frequently Asked Questions
Do I have to pay taxes on interest if I do not file a tax return?
Yes. You owe tax on interest income whether or not you file a return. However, if your total income is below the standard deduction, you may not be required to file. Your bank still reports the interest to the IRS, so it is better to file and report it yourself than to ignore it.
Can I deduct savings account interest as a loss?
No. Interest income cannot be deducted. You report it as income on your tax return. You cannot offset it with other losses unless those losses are from investments or business activities, which have their own deduction rules.
What if I earned interest in multiple savings accounts?
Each bank sends a separate 1099-INT if you earned $10 or more in that account. You add up all the interest from all your accounts and report the total on your tax return. The combined amount is taxed at your tax bracket rate.
Does moving money between savings accounts change how much tax I owe?
No. Moving money does not create taxable income. Only the interest your bank pays you is taxable. You can move money between accounts as much as you want without owing tax on the transfer itself.
What if my savings interest pushes me into a higher tax bracket?
It is possible, though rare with typical savings interest amounts. If your total income crosses into a higher bracket, only the income in that new bracket is taxed at the higher rate. The income below the bracket threshold is still taxed at the lower rate. This is called progressive taxation.