Interest income from a savings account is taxable at the federal level, and you report it on your tax return each year

The money you earn as interest on a savings account counts as income to the IRS. You do not pay tax on the account balance itself — only on the interest the bank pays you. If your savings account earned $50 in interest during the year, that $50 is taxable income, even though you did not work for it.

Your bank will send you a Form 1099-INT each January showing how much interest you earned in the previous year. You use this form to report the income on your federal tax return. Most people add this amount to their other income and pay tax at their regular income tax rate.

Some states also tax savings account interest, though the rules vary. A few states do not tax interest income at all. You will need to check your state's tax rules or speak with a tax preparer who knows your state's requirements.

Key Takeaways

  • Savings account interest is taxable federal income and must be reported on your tax return using the Form 1099-INT your bank sends you.
  • You pay tax on the interest earned, not on your account balance, at your regular income tax rate.
  • State tax treatment of savings interest varies — some states tax it, some do not, and the amount you owe depends on your state and your total income.
  • If you earned less than $10 in interest, your bank may not send a Form 1099-INT, but you still owe tax on that income if you file a return.
  • High-yield savings accounts earn more interest than traditional accounts, which means higher taxable income and potentially higher tax liability.

How the IRS knows about your interest income

Banks report interest payments to the IRS automatically. Your bank keeps a record of every deposit it makes to your account and sends that information to the IRS on Form 1099-INT. The bank also mails or emails a copy to you, usually by January 31 of the following year.

The IRS receives the same Form 1099-INT your bank sends to you, so they know exactly how much interest you earned. If you do not report this income on your tax return, the IRS will notice the mismatch between what you reported and what the bank reported. This is one of the easiest income sources for the IRS to track.

Even if your bank does not send you a Form 1099-INT because the interest was very small (under $10 at some banks), you still owe tax on that income if you file a return. The threshold for banks to issue a Form 1099-INT varies by bank, but the IRS does not have a minimum — any interest is taxable.

When you might owe little or no tax on savings interest

If your total income is low enough, you may not owe any federal income tax at all, even if you earned interest. The IRS sets a standard deduction each year — an amount of income you can earn without owing tax. For 2024, the standard deduction is $14,600 for a single person and $29,200 for a married couple filing jointly. If your total income, including savings interest, is below this amount, you owe no federal tax.

For example, if you are single, earned $13,000 in wages, and earned $1,000 in savings interest, your total income is $14,000. Since this is below the $14,600 standard deduction, you owe no federal income tax. However, you still need to file a return to claim a refund of any taxes withheld from your paychecks.

The standard deduction changes each year and is higher if you are 65 or older. Check the IRS website or a tax preparer for the current year's amount.

State taxes on savings account interest

Most states that have an income tax also tax interest income. However, a handful of states do not tax interest at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state income tax on your savings interest.

In states that do tax interest, the rate and rules vary. Some states tax interest at the same rate as wages. Others have a lower rate for investment income. A few states exempt a small amount of interest income — for example, some allow you to exclude the first $100 or $200 of interest earned.

If you live in a state with income tax, your state tax return will ask about interest income. You will report the same amount from your Form 1099-INT. Your state tax software or a tax preparer can tell you whether you owe state tax on your interest income.

High-yield savings accounts and tax liability

High-yield savings accounts pay much more interest than traditional savings accounts — sometimes 4% or higher, compared to 0.01% at many big banks. This means you earn more money, but you also owe more tax on that money.

If you have $10,000 in a high-yield account earning 4.5% annually, you will earn $450 in interest. That $450 is taxable income. If you are in the 22% federal tax bracket, you will owe about $99 in federal tax on that interest alone. In a traditional savings account earning 0.01%, you would earn only $1 in interest and owe roughly $0.22 in tax.

This does not mean high-yield accounts are a bad choice — you still come out ahead with more interest earned. But it does mean you should expect a higher tax bill if you move money to a high-yield account. Some people open high-yield accounts in December to earn interest in the new year, which spreads the tax liability across two tax years.

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

If you earned interest but did not receive a Form 1099-INT by early February, contact your bank. Ask whether the interest was below their reporting threshold or whether they sent it to an old address. You can also log into your online banking and look at your account statements — they will show every interest deposit the bank made.

If you earned interest and your bank confirms they did not send a Form 1099-INT, you still need to report the interest on your tax return. Write the amount on the line for interest income, even without the form. The IRS may eventually send your bank a notice asking why they did not report it, but you will have already reported it correctly on your end.

If your bank sent the Form 1099-INT to the wrong address or you lost it, you can request a duplicate from your bank. Most banks can email or mail a copy within a few business days.

Reporting savings interest on your tax return

On a federal Form 1040, interest income goes on Line 1b under "Income." If you use tax software, it will ask you to enter the amount from your Form 1099-INT. If you file by hand or with a tax preparer, give them the Form 1099-INT and they will enter it for you.

If you have interest from multiple accounts or banks, add them all together and report the total. You do not need to list each account separately on the federal return, though you may need to on your state return depending on your state's rules.

The interest income is added to your wages, self-employment income, and any other income you earned. Your total income is then reduced by deductions (the standard deduction or itemized deductions) to find your taxable income. Tax is calculated on your taxable income, not your total income.

Frequently Asked Questions

Do I have to file a tax return if I only earned interest and no wages?

Only if your interest income exceeds the standard deduction for your filing status. For 2024, a single person needs to file if they earned more than $14,600. If you earned less, you do not have to file a federal return, though you may want to if taxes were withheld from other income.

Can I deduct savings account fees from my interest income?

No. Interest income is reported as a gross amount, and you cannot reduce it by fees. However, if you paid investment-related fees (such as fees to a financial advisor), you may be able to deduct them as miscellaneous deductions, though the rules are strict and most people cannot claim them.

What if I moved money between accounts during the year?

Moving money between your own accounts does not create taxable income. Only the interest the bank pays you is taxable. If you transferred $5,000 from checking to savings, that transfer itself is not income — only the interest earned on that $5,000 is taxable.

Do I owe tax on interest if I withdraw the money before the end of the year?

Yes. You owe tax on all interest earned during the year, regardless of when you withdraw it. If you earned $100 in interest by June and then withdrew all your money, you still owe tax on that $100 for the full year.

How do I report interest from a joint savings account?

The bank will issue a Form 1099-INT showing the full interest amount. If the account is held jointly with a spouse and you file jointly, you report the full amount on your joint return. If you hold the account jointly with someone else (not a spouse), you may need to split the interest and each report your portion, depending on your ownership agreement and your state's rules.