Yes, you must report all checking account interest on your federal tax return, even if it's a small amount
Any interest your bank pays you on a checking account is taxable income. The IRS requires you to report it on your Form 1040, regardless of whether the bank sends you a 1099-INT form or how little interest you earned. If your account earned $10 in interest, you report $10. If it earned 47 cents, you report that too.
The bank will send you a 1099-INT if the interest reaches $10 or more in a calendar year. If you earned less than $10, the bank is not required to send the form, but you still owe tax on the interest. You can find the exact amount on your year-end account statement or by logging into your online banking portal and checking the interest posted to your account.
Most checking accounts earn very little interest—often less than 1% annually—so the tax impact is usually small. A $5,000 balance earning 0.01% interest generates about 50 cents per year. But high-yield checking accounts, which some online banks and credit unions offer, can pay 4% to 5% or higher, which means real tax liability.
Key Takeaways
- You must report all checking account interest on your federal tax return, even amounts under $10 that do not trigger a 1099-INT form.
- The bank sends a 1099-INT only when interest reaches $10 or more, but you are responsible for reporting smaller amounts yourself.
- Interest income is taxed at your ordinary income tax rate, which varies based on your total income and filing status.
- You report checking account interest on Schedule B (Form 1040) if you have more than $1,500 in total interest and dividend income, or directly on Form 1040 if less.
Where to report checking account interest on your tax return
If your total interest and dividend income for the year is $1,500 or less, you report the checking account interest directly on line 2b of Form 1040 (U.S. Individual Income Tax Return). You do not need to file Schedule B.
If your total interest and dividend income exceeds $1,500, you must file Schedule B (Interest and Ordinary Dividends) and attach it to your Form 1040. List each source of interest separately on Schedule B, including your checking account. The total from Schedule B then transfers to Form 1040.
If you received a 1099-INT from your bank, the amount shown in box 1 is the interest you report. If you did not receive a form because the interest was under $10, write the amount you found on your statement.
How the IRS knows about your interest income
Banks file 1099-INT forms with the IRS for accounts that earned $10 or more in interest during the year. The IRS receives a copy of that form and matches it against your tax return. If you report a different amount than what appears on the 1099-INT, or if you fail to report interest that the bank reported, the IRS will likely send you a notice.
Even if the bank did not send you a 1099-INT because interest was under $10, the IRS still expects you to report it. The IRS does not automatically know about interest under $10, but if you are audited or if the bank later corrects a form, the discrepancy can create problems.
The safest approach is to check your year-end statement or account summary for the exact interest earned, then report that figure on your return regardless of whether you received a 1099-INT.
What tax rate applies to checking account interest
Checking account interest is taxed as ordinary income, meaning it is taxed at the same rate as your wages, salary, or other regular income. It does not receive the lower tax rates that apply to long-term capital gains or may have access to dividends.
Your tax rate depends on your total income and filing status. For 2024, federal tax brackets range from 10% to 37%. If you earned $50,000 in wages and $200 in checking account interest, that $200 is added to your $50,000 and taxed at whatever bracket your combined income falls into.
Some states also tax interest income. The state tax rate varies by state and by your income level. A few states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not tax income at all, so residents of those states owe federal tax on checking account interest but no state tax.
High-yield checking accounts and tax reporting
High-yield checking accounts offered by online banks and some credit unions pay significantly more interest than traditional accounts—sometimes 4% to 5% annually. The tax reporting process is identical to a regular checking account: the bank sends a 1099-INT if interest reaches $10, and you report the interest on your tax return.
The difference is the dollar amount. A $10,000 balance in a 5% high-yield account earns $500 per year in interest. At a 22% federal tax rate, that creates about $110 in federal tax liability. At a 24% rate, it is roughly $120. This is still real money and should factor into your decision to move funds to a high-yield account.
Some people use high-yield checking accounts as a way to earn interest on emergency savings while keeping the money accessible. The tax cost is worth it if the interest earned exceeds what you would earn elsewhere. Others keep most savings in a regular checking account and use high-yield accounts only for money they plan to spend soon.
What happens if you do not report checking account interest
If you fail to report interest that appears on a 1099-INT the bank filed with the IRS, the IRS will notice the discrepancy during processing. You will receive a notice asking you to explain the difference or pay the tax owed plus interest and penalties.
If the interest was under $10 and the bank did not send a 1099-INT, the IRS is less likely to catch the omission unless you are audited. However, intentionally failing to report income—even small amounts—is tax evasion. The penalty for underreporting income can include back taxes, interest at the current IRS rate (which changes quarterly), and accuracy-related penalties of 20% of the underpaid tax.
The simplest approach is to report all interest, no matter how small. The tax on $5 in interest is less than 50 cents at most tax rates, and reporting it takes seconds.
Checking accounts at credit unions and their tax treatment
Credit union share draft accounts (the credit union equivalent of a checking account) are treated the same way as bank checking accounts for tax purposes. Interest earned on a credit union account is reported on a 1099-INT and must be included on your tax return.
Some credit unions offer dividend-bearing accounts instead of interest-bearing accounts. Technically, credit unions pay dividends rather than interest because they are member-owned cooperatives. However, for tax reporting purposes, dividends paid by credit unions on deposit accounts are treated identically to bank interest and reported on a 1099-INT in box 1.
The tax rate and reporting method are the same whether the money comes from a bank or a credit union.
Frequently Asked Questions
Do I have to report checking account interest if I only earned a few dollars?
Yes. The IRS requires you to report all interest income, regardless of amount. If the bank did not send a 1099-INT because interest was under $10, you still must report the interest on your return based on your account statement.
What if my bank sent me a 1099-INT with the wrong amount?
Contact the bank and ask them to issue a corrected 1099-INT. Once corrected, the bank files an amended form with the IRS. Report the corrected amount on your tax return. Keep a copy of the corrected 1099-INT with your tax records.
Can I deduct expenses related to my checking account?
No. Checking account fees, overdraft charges, and other account costs are not tax-deductible for personal accounts. Business checking accounts may allow some deductions, but that depends on your business structure and the nature of the expense.
Do I report interest from a joint checking account differently?
If the account is jointly owned, the bank typically sends a single 1099-INT to the primary account holder. You and the other owner must decide how to split the interest for tax purposes—usually 50/50, but it can be different if you contributed unequally. Each person reports their share on their own tax return.
What if I opened a checking account late in the year and earned interest in January of the next year?
Interest is reported in the tax year it is earned and posted to your account, not when you opened the account. Interest posted in January 2025 is reported on your 2025 tax return, even if you opened the account in December 2024.