The IRS does not tax savings account interest below a certain threshold, but you still have to report it if you earn any
The IRS requires you to report all interest income from savings accounts on your tax return, with one exception: if you earned less than $10 in interest during the year, you do not have to report it. That $10 threshold has not changed since 1981. If you earned $10 or more, you must report the full amount, even if it is only $10.01.
The interest itself is taxed as ordinary income at your marginal tax rate — the same rate you pay on wages. If you are in the 22% tax bracket, $100 in interest costs you $22 in federal tax. State and local taxes may apply on top of that, depending on where you live. Some states do not tax interest income at all; others tax it like any other income.
Your bank will send you a Form 1099-INT in January if you earned $10 or more in interest during the previous year. The form shows the exact amount. You use this number when you file your tax return. If you earned less than $10, your bank may still send a 1099-INT showing zero, or may not send one at all — but you are still responsible for reporting any interest you actually earned.
Key Takeaways
- Interest income under $10 per year does not have to be reported to the IRS, but any amount of $10 or more must be reported in full.
- Your bank sends a Form 1099-INT in January showing interest earned during the previous year if the amount is $10 or more.
- Savings account interest is taxed as ordinary income at your federal tax rate, plus any applicable state and local taxes.
- The $10 reporting threshold applies to all interest combined across all your accounts at all institutions.
- High-yield savings accounts earn more interest, which means higher tax liability — but the after-tax return is still usually better than traditional savings accounts.
How the $10 threshold works across multiple accounts
If you have savings accounts at three different banks, you add up the interest from all of them. If the total is $10 or more, you report it. If the total is under $10, you do not have to report any of it. The threshold is based on your combined interest income for the year, not on individual accounts.
Each bank reports its own interest on a separate 1099-INT form. When you file your tax return, you combine all the 1099-INT forms and report the total interest on your return. The IRS receives copies of all your 1099-INT forms, so they know what each bank reported about you.
What happens if you earn interest but do not receive a 1099-INT
If you earned $10 or more in interest and your bank did not send you a 1099-INT, you are still required to report the interest on your tax return. You can find the exact amount by logging into your online banking portal or calling your bank. Most banks show year-to-date interest earned in your account details or in your annual statement.
If you earned less than $10 and received no 1099-INT, you have no reporting requirement. But if you earned $10 or more and received no form, contact your bank and ask them to send one. If they do not, you can still file your return with the interest amount you calculated yourself — just keep your bank statements as proof in case the IRS asks.
State and local taxes on savings interest
Federal tax is only part of the picture. Your state may also tax interest income. Most states treat interest the same way the federal government does — as ordinary income taxed at your state income tax rate. A few states do not tax interest income at all.
States that do not tax interest income include Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe federal tax on your interest but no state tax. If you live elsewhere, check your state's tax rules or ask a tax preparer, because rates and rules vary.
Some states have special rules for retirees or for interest earned on certain types of accounts. If you are over 65 or retired, your state may offer a deduction or exemption on interest income. These rules change, so verify with your state's tax authority or a tax professional before you file.
How high-yield savings accounts change your tax picture
A high-yield savings account earns 4% to 5% annual percentage yield (APY), compared to 0.01% at a traditional savings account. On $10,000, that difference is roughly $400 to $500 per year instead of $1. The higher interest means higher tax liability — but the after-tax return is still much better.
If you earn $500 in interest and you are in the 22% federal tax bracket, you owe $110 in federal tax. Your after-tax gain is $390. Compare that to earning $1 in a traditional account and owing $0.22 in tax — the high-yield account still comes out far ahead, even after taxes.
The tax hit is real, though. If you are in a higher tax bracket (32%, 35%, or 37%), the cost of that interest income is steeper. Some people move money to high-yield accounts only when they have cash they do not need for several years, to minimize the tax impact of frequent deposits and withdrawals.
Reporting interest on your tax return
You report interest income on Schedule B (Interest and Ordinary Dividends) if your total interest and dividends exceed $1,500 for the year. If your total is $1,500 or less, you can report it directly on your Form 1040 without filing Schedule B — but you still have to report it.
When you file electronically using tax software, the software usually asks you to enter your 1099-INT information, and it fills in the right line on your return automatically. If you file by hand, write the total interest amount on line 1b of your Form 1040.
Keep your 1099-INT forms and bank statements for at least three years in case the IRS asks questions. The IRS matches the 1099-INT forms it receives from banks against the amounts reported on tax returns, so discrepancies can trigger an audit notice.
What to do if your 1099-INT shows the wrong amount
If your 1099-INT shows interest that does not match your bank records, contact your bank immediately. Banks make mistakes — they may have credited interest to the wrong account, double-counted a deposit, or included interest from a closed account. Ask the bank to issue a corrected 1099-INT (called an amended 1099-INT) before you file your tax return.
If you file your return before the bank corrects the form, report the correct amount on your return and keep documentation of the error and the bank's response. If the IRS contacts you about the discrepancy, you have proof that you reported the right number and that the bank made the error.
Frequently Asked Questions
Do I have to report $9.99 in interest?
No. The IRS threshold is $10. Interest under $10 does not have to be reported. If you earned $9.99, you have no reporting requirement. If you earned $10.00 or more, you must report the full amount.
What if I have interest in a joint account — do I report all of it or split it?
You report only your share of the interest. If you and another person own a joint account, the bank reports the total interest on a 1099-INT, but you are responsible only for your portion. You and the other account holder should agree on how to split the interest, and each report your share on your own tax return.
Can I avoid taxes by keeping my savings under $10 in interest?
You can structure your savings to stay under the $10 threshold, but this is usually not practical. Earning less than $10 in interest means your money is barely growing — you are losing purchasing power to inflation. The tax on higher interest is a cost of having your money work for you, and it is almost always worth paying.
Do I owe taxes on interest if I withdraw the money before the year ends?
Yes. You owe tax on interest in the year it is earned, not in the year you withdraw it. If you earn $50 in interest in January and withdraw the money in December, you still report that $50 on your tax return for that year.
What if I move money between my own accounts — is that interest?
No. Moving money from one account to another is not income. Only the interest the bank pays you counts as interest income. Transfers between your own accounts are not taxable.