The tax rate on your savings interest depends on your total income and filing status
Interest from a savings account is taxed as ordinary income, which means it uses the same tax brackets as your wages or salary. The federal tax rate you pay on that interest ranges from 10% to 37%, depending on how much total income you earned that year and whether you file as single, married filing jointly, head of household, or another status.
Your bank will report the interest to the IRS on a Form 1099-INT if you earned $10 or more in interest during the year. You report this amount on your tax return, and it gets added to your other income. The more income you have from all sources, the higher your tax bracket, and the higher the percentage you owe on that interest.
State and local taxes also apply in most places. Some states tax interest income at rates between 1% and 13%, while others do not tax it at all. A few cities also charge local income tax on interest. Your total tax bill on savings interest is the sum of federal, state, and local taxes owed.
Key Takeaways
- Federal tax on savings interest ranges from 10% to 37% depending on your total income and filing status for that year.
- Your bank reports interest of $10 or more on Form 1099-INT, which you must include on your tax return as ordinary income.
- State income tax on interest varies from 0% to 13% depending on which state you live in, and a few cities charge local tax as well.
- The tax you owe is calculated when you file your return, not when you earn the interest, so you may owe money even if the bank did not withhold anything.
How federal tax brackets work with interest income
The federal tax system uses tax brackets, which are income ranges that correspond to a tax rate. In 2024, for example, a single filer pays 10% on income up to $11,600, then 12% on income from $11,601 to $47,150, and so on. When you add interest income to your other income, you move into a higher bracket if your total crosses a threshold.
This means the tax rate on your interest is not fixed—it depends on where your total income lands. If you earn $50,000 in wages and $500 in interest, that $500 is taxed at 22% (the bracket for single filers earning $47,151 to $100,525). If you earn $10,000 in wages and $500 in interest, the $500 is taxed at 12%. The brackets change every year, and they are different for each filing status.
You do not pay the same rate on all your income. The system is progressive: you pay 10% on the first portion, 12% on the next portion, and so on. Interest income is added to your other income and taxed at whatever bracket it falls into.
State and local taxes on savings interest
Most states tax interest income as part of their state income tax. The rates vary widely: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax interest income at all. Other states tax it at rates ranging from 1% to 13%. You can find your state's rate on your state revenue department's website.
A handful of cities also charge local income tax on interest. New York City, for example, taxes interest at rates up to 3.876% depending on your income. Philadelphia taxes it at 3.8701%. If you live in a city with local income tax, that amount is added on top of your federal and state taxes.
If you live in a state with no income tax but earn interest in another state (for example, from a savings account you opened before moving), you may owe tax to that state. The rules vary, so check with both your current state and the state where the account is held if this applies to you.
When the bank withholds tax and when it does not
Banks do not automatically withhold federal income tax from savings interest. The interest is simply added to your account, and you are responsible for reporting it and paying the tax when you file your return. This is different from wages, where your employer withholds tax before you receive the money.
If you owe a large amount of tax on interest income and did not pay it throughout the year, you may face an underpayment penalty when you file. The IRS charges interest on unpaid taxes, and you may also owe a penalty if you did not pay enough tax during the year through withholding or estimated payments.
You can request that a bank withhold tax from your interest if you want to, though most people do not. This is done on Form W-9 or a similar request form. Withholding does not reduce the tax you owe—it just sends the money to the IRS before you file your return, which can help you avoid an underpayment penalty.
How to report interest income on your tax return
Your bank will send you a Form 1099-INT by January 31 of the year after you earn the interest. This form shows the total interest you earned in that calendar year. You receive a copy for your records and the IRS receives a copy automatically.
On your federal tax return, you report this interest on Schedule 1 (Form 1040), line 8a. The amount goes into your total income, which determines your tax bracket and your overall tax bill. If you have interest from multiple banks or accounts, add them all together and report the total.
On your state return, you typically report interest income on a similar line, though the form name and line number vary by state. Check your state's tax form instructions to find where interest income goes. If you live in a state with no income tax, you do not file a state return and do not report the interest to the state.
Interest income from different account types
Regular savings accounts, money market accounts, and certificates of deposit (CDs) all generate taxable interest. The interest is taxed the same way regardless of the account type. High-yield savings accounts earn more interest than traditional savings accounts, which means you owe more tax on the interest, but the tax treatment is identical.
Interest from bonds, bond funds, and Treasury securities is also taxed as ordinary income on your federal return, though Treasury interest is exempt from state and local tax. Interest from I Bonds (Series I Savings Bonds) is not taxed until you cash in the bond or it reaches final maturity, which can be 30 years later.
Interest earned in a tax-advantaged account like a traditional IRA or 401(k) is not taxed in the year you earn it. The tax is deferred until you withdraw money from the account. Interest in a Roth IRA is never taxed if you follow the withdrawal rules.
What to do if you did not receive a Form 1099-INT
If you earned $10 or more in interest during the year and your bank did not send you a Form 1099-INT by January 31, contact the bank and ask for it. The bank may have sent it to an old address, or there may have been an error in the account information on file.
If the bank cannot locate the form or says it was not issued, you still owe tax on the interest you earned. You can report the interest based on your own records—your account statements show the interest deposits. The IRS has a copy of the 1099-INT the bank filed, so reporting the correct amount protects you from an audit.
If you received a 1099-INT but the amount is wrong, contact the bank immediately. The bank can issue a corrected form (Form 1099-INT with a "CORRECTED" box checked) and send it to both you and the IRS. Do not file your return until you have the correct form.
Frequently Asked Questions
Do I have to pay tax on interest if I earned less than $10?
Yes. The $10 threshold only determines whether the bank sends you a Form 1099-INT. You owe tax on all interest income, regardless of the amount. Report it on your return based on your account statements if you do not receive a 1099-INT.
Can I deduct savings account interest as a loss?
No. Interest income is taxable, and you cannot deduct it as a loss or expense. You report the full amount as income. The only exception is if you paid interest on a loan to earn the investment income, which may be deductible under specific rules.
What if I moved to a state with no income tax after earning interest?
You owe tax to the state where you earned the interest during the year you earned it. If you earned interest in a state with income tax and then moved to a state with no income tax, you still file a return in the state where you lived when you earned the interest and pay tax on it there.
Is interest from a joint savings account taxed differently?
The interest is taxed based on who owns the account. If both owners contributed equally and own the account jointly, each person reports half the interest on their own return. If one person owns it and the other is just an authorized user, the owner reports all the interest. Check your account documents to confirm ownership.
Do I owe tax on interest if I reinvest it back into the account?
Yes. You owe tax on interest in the year you earn it, even if you do not withdraw it and let it sit in the account. The tax is based on when the interest is credited to your account, not when you spend or withdraw it.