Interest on savings accounts is taxable income, and you report it on your federal tax return using Form 1040 and Schedule B if the total exceeds $1,500 for the year

The IRS treats interest from savings accounts the same way it treats wages or other income — you owe federal income tax on it. Your bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year. You then report that amount on your tax return. The threshold for receiving a 1099-INT varies by bank, but many issue the form when interest reaches $10 or more; however, you must report all interest income regardless of whether you receive a form.

If your total interest income for the year is $1,500 or less, you report it directly on Form 1040, line 2b. If it exceeds $1,500, you must also complete Schedule B (Interest and Ordinary Dividends) and attach it to your return. State income tax rules vary — some states tax savings account interest, others do not. Check your state's tax authority website to learn whether you owe state tax on the interest.

Key Takeaways

  • Your bank sends Form 1099-INT in January if you earned $10 or more in interest, but you must report all interest income even if you don't receive the form.
  • Interest under $1,500 goes on Form 1040 line 2b; interest over $1,500 requires Schedule B as well.
  • Federal tax applies to all savings account interest, but state tax rules differ — some states don't tax it at all.
  • If you have multiple savings accounts, add up the interest from all of them before deciding whether you need Schedule B.

When your bank sends Form 1099-INT

Banks mail Form 1099-INT by January 31 each year for interest earned during the previous calendar year. The form shows your name, address, Social Security number, and the total interest paid. You receive a copy, and the IRS receives another. If you earned interest but did not receive a 1099-INT, the bank may have determined the amount was below their reporting threshold — but you still owe tax on it and must report it yourself.

Some banks issue 1099-INTs only when interest reaches $10; others use different thresholds. If you have multiple accounts at the same bank, the interest may be combined on a single form. If you have accounts at different banks, you will receive separate forms from each one. Keep all 1099-INT forms with your tax records for at least three years.

How to report interest on your tax return

Start by adding up all interest income from all your savings accounts for the year. This total is what you report, not the individual amounts from each account. On Form 1040, line 2b asks for "Interest." Enter your total there. If the total is $1,500 or less, you are done with this part — no Schedule B is required.

If your total interest exceeds $1,500, you must complete Schedule B. List each account separately on the schedule, showing the name of the bank and the interest amount from each 1099-INT. Add up all the amounts and transfer the total to Form 1040, line 2b. Schedule B also asks whether you received a Form 1099-INT and whether the IRS received a matching form — answer based on what actually happened with your accounts.

State income tax on savings account interest

Federal tax is not the only tax that may apply. Your state's rules depend on where you live and where the bank is located. Most states that have an income tax treat savings account interest the same way the federal government does — as taxable income. However, some states exempt interest income entirely, and a few have special rules for certain types of accounts or ages of account holders.

Check your state's department of revenue or taxation website to learn the rule for your situation. If you live in a state with income tax and earned interest, you will typically report it on your state tax return as well, using a form similar to your federal return. Some states use the same threshold as the federal government (reporting interest over $1,500); others have different thresholds or no threshold at all.

What happens if you don't report interest income

The IRS matches the 1099-INT your bank sends to the IRS against the interest you report on your return. If you report less than the form shows, or if you report nothing when a form was issued, the IRS will likely send you a notice asking for the difference plus penalties and interest. The penalty for underpayment of tax is typically 20% of the unpaid tax, plus interest calculated from the original due date.

If you simply forgot to report interest, you can file an amended return (Form 1040-X) to correct it. The IRS is more likely to work with you if you file the amendment before they contact you. If you earned interest but did not receive a 1099-INT because the amount was small, you still owe tax on it — reporting it voluntarily protects you from penalties if the IRS later discovers the income.

Interest from high-yield and money market accounts

High-yield savings accounts and money market accounts work the same way as regular savings accounts for tax purposes. The interest you earn is taxable income, and your bank will send a 1099-INT if the threshold is met. Some high-yield accounts pay interest monthly or even daily, so the total can add up quickly — it is not uncommon for these accounts to generate $1,500 or more in interest per year, which means you will need Schedule B.

If you moved money between accounts during the year or opened a new account partway through, the interest is still taxable for the full year. The bank reports only the interest paid by that bank; if you have accounts at multiple banks, each one sends its own 1099-INT, and you add them all together for your tax return.

Frequently Asked Questions

Do I have to report interest if it's less than $10?

Yes. The $10 threshold is only when banks must send a 1099-INT form. You owe tax on all interest income regardless of the amount. If you earned $5 in interest and did not receive a form, you still report it on your tax return.

What if I have interest from a joint account?

The bank reports the full interest amount on the 1099-INT for whichever person's Social Security number is listed first on the account. That person reports the full amount on their tax return. If you and the account holder split the interest differently, you may need to file an amended return or work out a separate arrangement, but the IRS initially expects the person on the form to report it all.

Can I deduct anything against the interest I earned?

No. Interest income is reported as-is; you cannot deduct account fees, minimum balance penalties, or other costs against it. However, if you paid interest on a loan to earn the savings account interest (which is rare), you might be able to deduct investment interest under certain conditions — consult a tax professional about your specific situation.

Do I report interest from a CD the same way?

Yes. Certificates of deposit (CDs) generate interest that is taxed the same way as savings account interest. Your bank sends a 1099-INT for CD interest, and you report it on your tax return using the same process. If the CD matured and you reinvested the money, the interest is still taxable in the year it was earned, even if you did not withdraw it.

What if I closed my account during the year?

The interest you earned before closing the account is still taxable. The bank reports it on a 1099-INT for that year. If you closed the account early and paid an early withdrawal penalty, you can deduct that penalty on Form 1040, line 21, as an adjustment to income — this partially offsets the interest you owe tax on.