Interest income from your checking account is taxable, but most checking accounts earn so little that you won't owe tax on it

The IRS taxes interest your bank pays you on a checking account the same way it taxes interest from savings accounts or money market accounts. If your bank pays you interest, they report it to the IRS on a Form 1099-INT, and you have to report that income on your tax return. However, most standard checking accounts pay zero or near-zero interest, so most people have nothing to report.

High-yield checking accounts are different. Some online banks and credit unions offer checking accounts that pay 4% to 5% annual interest. If you keep $10,000 in one of those accounts for a full year, you might earn $400 to $500 in interest. That $400 to $500 is taxable income, and your bank will send you a Form 1099-INT by January 31 of the following year.

The tax you owe on that interest depends on your overall income and tax bracket. If you're in the 22% tax bracket, $400 in interest means roughly $88 in federal tax. State income tax may apply too, depending on where you live.

Key Takeaways

  • Banks report checking account interest to the IRS on Form 1099-INT if the interest is $10 or more for the year.
  • Most traditional checking accounts pay no interest, so there is nothing to report to the IRS.
  • High-yield checking accounts can pay 4% to 5% interest, which is taxable as ordinary income at your regular tax rate.
  • You report the interest income on your tax return; the bank does not pay the tax for you.

How banks report checking account interest to the IRS

Your bank issues a Form 1099-INT for any interest paid to you during the tax year. The bank sends one copy to you and another to the IRS. You receive it by January 31 of the year after the interest was paid.

Banks are required to issue a 1099-INT only if the interest is $10 or more. If you earned $8 in interest, your bank may not send you a form, but you still owe tax on that $8 if you file a return. If you earned $10 or more, the form is mandatory.

The form shows the account number, the total interest paid, and any federal tax withheld (which is rare for checking accounts). You use this form to fill out your tax return. If you don't receive a 1099-INT by early February and you know you earned interest, contact your bank to request a copy.

The difference between traditional and high-yield checking accounts

A traditional checking account at a big bank typically pays 0% to 0.01% interest. On a $5,000 balance, that's $0 to $0.50 per year. You won't receive a 1099-INT because the interest falls below the $10 threshold.

High-yield checking accounts, offered by online banks and some credit unions, pay 4% to 5% APY (annual percentage yield). The same $5,000 earns $200 to $250 per year. That crosses the $10 reporting threshold, and you'll receive a 1099-INT. The tradeoff is that these accounts often require a minimum balance, direct deposit, or a certain number of debit card transactions per month.

Money market accounts and savings accounts follow the same tax rule: interest is taxable, and banks report it on a 1099-INT. The rate of interest doesn't change the tax treatment—only the amount of tax you owe.

How to report checking account interest on your tax return

When you file your federal tax return, you report interest income on Schedule B (Interest and Ordinary Dividends) if you have more than $1,500 in total interest and dividends. If you have $1,500 or less, you can report it directly on Form 1040 without filing Schedule B.

You enter the total interest from all your accounts—checking, savings, money market, CDs, bonds—in one place. The IRS already has a copy of your 1099-INT from your bank, so they know what you earned. Reporting it yourself prevents a mismatch that could trigger a notice.

Interest income is taxed as ordinary income at your regular tax rate. It does not get any special treatment like capital gains or may have access to dividends. If you're in the 24% tax bracket and earned $400 in checking account interest, you owe roughly $96 in federal tax on that interest alone.

State income tax on checking account interest

Most states that have an income tax also tax interest income the same way the federal government does. You report it on your state return using the same 1099-INT your bank sent you.

A few states do not tax interest income. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe federal tax on your checking account interest but no state tax.

Some states tax interest but exempt interest from certain accounts, like municipal bonds or retirement accounts. Check your state's tax agency website or your state tax form instructions to see how interest is treated where you live.

What to do if you don't receive a 1099-INT

If you earned $10 or more in interest and your bank did not send you a 1099-INT by February 15, contact the bank directly. Ask for a corrected or duplicate form. Most banks can email or mail one to you within a few business days.

If your bank says they did not issue one because the interest was below $10, you still owe tax on it. Report the amount you know you earned (check your account statements) on your tax return, even without the form.

If you file your return before receiving a 1099-INT and later get one that shows different interest, you may need to file an amended return. Use Form 1040-X to correct your federal return. Most tax software will flag a mismatch between what you reported and what the IRS received from your bank.

Frequently Asked Questions

Do I have to pay tax on interest if I earned less than $10?

Yes. The $10 threshold only determines whether your bank must send you a 1099-INT form. You still owe tax on any interest you earned, even if it's $5. Report it on your tax return using your account statements as proof.

Can I deduct checking account fees from the interest I earned?

No. You report the gross interest your bank paid you. Checking account fees are not deductible on your personal tax return. However, if you're self-employed, some business-related banking fees may be deductible as a business expense.

What if I opened a high-yield checking account in December and earned only $20 in interest?

You still owe tax on that $20. Your bank will report it on a 1099-INT for that tax year. The amount of interest does not matter—only whether it's $10 or more for the bank to issue a form.

Does the bank withhold taxes from checking account interest?

Rarely. Banks withhold federal tax on interest only if you ask them to or if you have not provided a valid tax ID. Most checking account interest is paid without withholding, so you owe the full tax when you file your return.

If I move money between checking accounts, do I get taxed twice?

No. Transferring money between your own accounts is not a taxable event. Only the interest your bank pays you is taxable, regardless of how many times you move the money around.