Checking account interest is taxable income to the IRS

Any interest your checking account earns is taxable income. The IRS treats it the same way it treats wages or freelance income — you owe federal income tax on it, and depending on your state, you may owe state income tax too. The bank reports what you earned to both you and the IRS on a Form 1099-INT, and you report that amount on your tax return.

The amount of interest you actually earn on a checking account is usually small — most banks pay between 0.01% and 0.50% annually on checking balances — so your tax bill on it will be small too. But the IRS still requires you to report it, even if the amount seems trivial.

You do not get to choose whether to report it. If the bank sends a 1099-INT to the IRS with your name and Social Security number on it, the IRS will expect to see that income on your return. If you do not report it, the IRS computer will flag the mismatch.

Key Takeaways

  • Banks report checking account interest to the IRS on Form 1099-INT, and you must report the same amount on your tax return.
  • You owe federal income tax on the interest at your ordinary tax rate, plus state income tax in most states.
  • Banks only send a 1099-INT if interest earned reaches $10 or more in a calendar year, but you still owe tax on smaller amounts.
  • The interest is reported in the year you earned it, not the year you withdraw the money.
  • High-yield savings accounts and money market accounts follow the same reporting rules as checking accounts.

When the bank sends Form 1099-INT and what it shows

Your bank will mail or email you a Form 1099-INT by January 31 of the year following the one in which you earned the interest. For example, interest you earned during 2024 will be reported on a 1099-INT you receive by January 31, 2025.

The form shows the total interest paid to your account during that calendar year. It includes your name, your Social Security number, the bank's name and ID number, and the interest amount in Box 1. The bank sends a copy to you and a copy to the IRS.

Banks are only required to send a 1099-INT if the interest reaches $10 or more in a calendar year. If you earned $8 in interest, the bank may not send a form. However, you still owe tax on that $8 — you just have to report it yourself on your return without a 1099-INT to reference.

How much tax you owe on the interest

The tax you owe depends on your marginal tax bracket — the tax rate that applies to your highest dollars of income. If you are in the 12% federal tax bracket, you owe 12% of the interest in federal tax. If you are in the 22% bracket, you owe 22%.

For example, if you earned $50 in checking account interest and you are in the 12% bracket, you owe $6 in federal tax on that interest. If you are in the 22% bracket, you owe $11.

Most states also tax interest income at their ordinary income tax rate. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not have a state income tax at all. If you live in one of those states, you owe only federal tax. If you live elsewhere, add your state's tax rate to the federal rate to find your total tax bill.

Where to report the interest on your tax return

If you file Form 1040 (the standard federal income tax form), you report the interest on Schedule 1, Part I, line 8. You enter the total interest from all your 1099-INT forms combined.

If you use tax software, the software will ask you to enter the 1099-INT information, and it will automatically place the interest in the correct location on your return. If you file by hand or work with a tax preparer, give them all your 1099-INT forms so they can enter the amounts correctly.

The interest is added to your other income to calculate your total taxable income for the year. It may push you into a higher tax bracket if you are close to a bracket boundary, though this is rare with checking account interest amounts.

Interest earned but not yet received still counts

You owe tax on interest in the year you earned it, not the year you withdraw it or the year the bank actually deposits it into your account. Most banks deposit interest monthly, so the timing usually does not matter — you earn it and receive it in the same month. But if a bank closes or if there is a delay in crediting interest, the tax year is still the year you earned it.

This matters most if you move money between banks. If you close a checking account in December and the bank deposits final interest in January, that interest is taxable in the year you earned it (the prior year), not the year you received it.

High-yield checking and money market accounts follow the same rules

High-yield checking accounts and money market accounts that are part of a checking account package earn more interest than standard checking accounts — sometimes 4% to 5% annually — but they are taxed the same way. The bank reports the interest on Form 1099-INT, and you report it on your tax return at your marginal tax rate.

If you have multiple accounts at the same bank, the bank combines all the interest from all accounts and reports the total on a single 1099-INT. If you have accounts at different banks, each bank sends its own 1099-INT, and you add them all together on your return.

What to do if you do not receive a 1099-INT

If you earned less than $10 in interest, the bank is not required to send a 1099-INT. You still owe tax on that interest — you just report it on your return without a form to reference. Write the amount on Schedule 1, line 8, and note "interest from [bank name]" next to it.

If you earned $10 or more and did not receive a 1099-INT by early February, contact the bank and ask them to send it or provide the interest total. If the bank cannot locate the form, ask for a written statement of the interest paid. Keep that statement with your tax records.

If the IRS later sends you a notice saying the bank reported interest that you did not report on your return, respond with documentation showing you did report it, or explain that the amount was under $10 and the bank was not required to send a form. The IRS will usually accept a written explanation if you can show you made a good-faith effort to report the income.

Frequently Asked Questions

Do I have to report interest if it is only a few dollars?

Yes. The IRS requires you to report all interest income, regardless of the amount. The bank only has to send a 1099-INT if interest reaches $10, but you still owe tax on smaller amounts and should report them on your return.

Can I deduct fees the bank charged me against the interest income?

No. You report the gross interest the bank paid you, not the interest minus fees. Bank fees are not deductible on your personal tax return (they may be deductible if you are self-employed and the account is a business account, but that follows different rules).

What if I earned interest but closed the account before the end of the year?

The interest is still taxable in the year you earned it. The bank will report it on a 1099-INT even if you closed the account. You report it on your tax return for that year.

Do I owe tax on interest if I am a minor or a dependent?

Yes, but you may not owe federal income tax if your total income is below the standard deduction for your filing status. A minor with only checking account interest as income typically does not owe federal tax if the interest is under roughly $1,150 (the 2024 standard deduction for a dependent). You should still file if a 1099-INT was issued, because the IRS will expect to see it reported.

Is interest from a joint checking account split between the account holders for tax purposes?

Not automatically. The bank reports the total interest to the Social Security number listed as the primary account holder. If you and another person own the account jointly and want to split the tax burden, you need to report that split on your individual returns and keep documentation of the agreement. The IRS will not know about the split unless you tell them.