You don't pay income tax on the money sitting in your checking account itself, but you do pay tax on any interest the bank pays you
The balance you keep in checking — whether it's $500 or $50,000 — is not taxable income. That money is yours, and you've already paid tax on it when you earned it. The IRS doesn't tax you again just for holding it in a bank.
However, most checking accounts earn a small amount of interest, and that interest is taxable. If your bank pays you $5 in interest over a year, that $5 counts as income and must be reported on your tax return. Some checking accounts earn no interest at all, which means there's nothing to report.
The bank will send you a form called a 1099-INT if you earned $10 or more in interest during the year. You use this form to report the interest on your federal tax return. If you earned less than $10, the bank may not send the form, but you still owe tax on the interest — you just have to calculate and report it yourself.
Key Takeaways
- Your checking account balance itself is not taxable income, no matter how much money you have in it.
- Interest paid by the bank on your checking account is taxable and must be reported on your tax return.
- Banks send a 1099-INT form only if interest reaches $10 or more in a calendar year.
- Interest under $10 is still taxable even if you don't receive a form — you report it yourself on your return.
- High-yield checking accounts pay more interest, which means more tax owed, but the interest rate is still usually very low.
How the IRS treats checking account interest
The IRS treats bank interest as ordinary income, the same category as wages or salary. It gets added to your total income for the year and taxed at your regular income tax rate. If you're in the 22% tax bracket, you'll owe roughly 22% of the interest you earned.
Most traditional checking accounts pay little to no interest — often 0.01% or less per year. On a $10,000 balance, that's about $1 in annual interest, which falls below the $10 threshold for receiving a 1099-INT form. High-yield checking accounts pay more — sometimes 4% to 5% — but these are less common and usually come with requirements like a minimum balance or a certain number of debit card transactions per month.
If you have multiple accounts at different banks, each one that pays $10 or more in interest will send its own 1099-INT. You add all the interest together when you file your return.
When you'll receive a 1099-INT form from your bank
Banks are required to send a 1099-INT to you and to the IRS if you earned $10 or more in interest during the calendar year. The form arrives by January 31 of the following year. For example, if you earned $12 in interest during 2024, you'll receive the form by January 31, 2025.
The form shows the account number, the bank's name, and the total interest paid. It's straightforward — usually just one number on the form. You'll use this amount when you file your tax return, either on Schedule B (if you have other investment income) or directly on your 1040 if it's your only interest income.
If you earned less than $10 in interest, the bank won't send a form. However, you should still report the interest on your return. Check your bank statements or your online banking portal to find the exact amount.
Reporting checking account interest on your tax return
If you received a 1099-INT, the interest amount goes on Schedule B (Interest and Ordinary Dividends) if you have other investment income, or directly on line 1b of your Form 1040 if it's your only interest income. The exact line changes slightly year to year, so check the current year's 1040 instructions.
If you earned less than $10 and didn't receive a form, you still report it — just on the same line. The IRS expects you to report all interest, whether or not you have a form.
If you file using tax software, it will usually ask you about interest income and walk you through where to enter it. If you file by hand or with a tax professional, they'll know where the amount goes.
What counts as checking account interest versus other deposits
Interest is money the bank pays you for letting them use your money. It's separate from deposits you make yourself — paychecks, transfers from other accounts, gifts, or refunds. Those deposits are not income (you've already paid tax on wages, and gifts and transfers are not taxable).
Some checking accounts offer cash-back rewards or sign-up bonuses. These may or may not be taxable depending on how the bank structures them. A sign-up bonus of $200 for opening an account is usually considered taxable income and should appear on a 1099-INT or 1099-MISC. Cash-back rewards on debit card purchases are typically not taxable because they're treated as a discount on your purchase, not income.
If you're unsure whether a particular payment from your bank is interest or a bonus, check your account statements or call the bank. The 1099-INT will clarify what the bank is reporting to the IRS.
Checking accounts that pay no interest
Many basic checking accounts pay zero interest. If your account earns nothing, there's nothing to report on your taxes. You can hold any amount of money in the account without tax consequences.
Some accounts are specifically labeled as "non-interest-bearing" checking accounts. These are common at traditional banks and credit unions. They're useful if you want a simple account for everyday spending without worrying about tax reporting.
The tradeoff is that your money earns nothing. If you have a large balance sitting idle, a high-yield savings account or money market account might earn you more interest — though again, you'd owe tax on that interest.
State taxes on checking account interest
Most states that have an income tax also tax bank interest at your regular state income tax rate. A few states — including Tennessee, Texas, Florida, and others — don't tax interest income at all. If you live in one of those states, you owe federal tax on the interest but no state tax.
Your state tax return will ask about interest income just like your federal return does. If you received a 1099-INT, you'll report the same amount to both the IRS and your state tax authority. Some states use the federal 1099-INT directly; others have their own forms.
If you're not sure whether your state taxes interest, check your state's tax authority website or ask a tax professional. The rules vary, and knowing whether you owe state tax affects your total tax bill.
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The $10 threshold only determines whether the bank sends you a 1099-INT form. You still owe tax on all interest, no matter how small. Check your bank statements for the exact amount and report it on your return.
What if my bank didn't send me a 1099-INT but I think I earned more than $10?
Contact the bank and ask for a corrected form or a statement showing the interest paid. Banks sometimes make mistakes. If the bank confirms you earned $10 or more and won't send a form, you can still report the interest yourself based on your account statements.
Does a joint checking account change how I report interest?
If the account is jointly owned, the bank typically sends the 1099-INT to the primary account holder, but both owners are responsible for the tax. You may need to split the interest between you and your co-owner depending on your ownership agreement. Consult a tax professional if you're unsure how to divide it.
Can I deduct checking account fees from the interest I earned?
No. You report the full interest amount as income. Checking account fees are not deductible on your personal tax return (they might be deductible if you're self-employed and the account is for business, but that's a different situation).
Is a sign-up bonus for opening a checking account taxable?
Usually yes. Most banks report sign-up bonuses as taxable income on a 1099-INT or 1099-MISC. The exact treatment depends on how the bank structures it, so check the form you receive or ask the bank before you open the account if the bonus amount is large.