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 from interest in a savings account counts as income to the IRS. You do not pay taxes on the money you deposit — that is your own money — but you do pay taxes on the interest the bank pays you. The amount varies depending on the interest rate your bank offers and how much money sits in the account.
Your bank will send you a form called a 1099-INT (Interest Income) if you earned $10 or more in interest during the tax year. You use this form to report the interest on your federal tax return. Even if you earn less than $10, you still owe tax on that interest — you just will not receive the form.
Some states also tax savings account interest, while others do not. This depends on where you live and the state's income tax rules. If your state has an income tax, you will likely owe state tax on the interest as well.
Key Takeaways
- Savings account interest is taxable income at the federal level and must be reported on your tax return.
- Your bank sends you a 1099-INT form if you earned $10 or more in interest during the year, but you owe tax on all interest earned regardless of the amount.
- State taxes on savings interest vary — some states do not tax it, while others tax it as regular income.
- The tax you owe depends on your total income and tax bracket, not just the interest amount.
- High-yield savings accounts earn more interest, which means you will owe more in taxes on that interest.
How the IRS treats savings account interest
The IRS classifies savings account interest as ordinary income, the same category as wages from a job. This means it gets added to your total income for the year and taxed at your regular tax rate. If you are in the 22% tax bracket, you pay roughly 22% on that interest. If you are in the 12% bracket, you pay roughly 12%.
The bank does not withhold taxes from your interest automatically — the money goes straight into your account. You are responsible for reporting it when you file your return. If you do not report it and the IRS finds out (which they can, because the bank reports it to them on your 1099-INT), you will owe the tax plus penalties and interest.
Interest earned in a calendar year gets reported on your tax return filed the following year. If you earned interest in 2024, you report it on your 2025 tax return, which you file by April 15, 2025.
When you receive a 1099-INT form and what it means
If your savings account earned $10 or more in interest during the tax year, your bank mails you a 1099-INT by January 31. This form shows the total interest paid to you. You receive a copy for your records, and the bank sends a copy to the IRS.
The 1099-INT lists the interest in Box 1. If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each bank. You add up all the interest from all your forms and report the total on your tax return.
If you earned less than $10 in interest, your bank will not send you a 1099-INT, but you still owe tax on that interest. You report it on your return based on your own records — the bank statements showing the interest deposits.
State income taxes on savings interest
Nine states do not have an income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividend income, but many savings accounts fall outside this). If you live in one of these states, you do not owe state tax on your savings interest.
All other states tax savings interest as regular income. The rate depends on your state and your income level. Some states have a flat tax rate (everyone pays the same percentage), while others use tax brackets similar to the federal system.
You report state interest income on your state tax return, usually on a form that mirrors the federal return. If you moved during the year or have income from multiple states, you may need to file returns in more than one state.
How much tax you actually owe on interest
The tax you owe on savings interest depends on your total income for the year, not just the interest amount. If you earned $50,000 in wages and $200 in interest, your total taxable income is $50,200. That $200 gets taxed at your marginal rate — the rate that applies to your highest income.
For 2024, federal tax brackets are:
| Tax Bracket | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | $0 to $11,600 | $0 to $23,200 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 |
If you are single and earned $45,000 in wages plus $300 in interest, you fall in the 12% bracket. You owe roughly $36 in federal tax on that interest. If you earned $105,000 in wages plus $300 in interest, you fall in the 24% bracket and owe roughly $72 in federal tax on the same $300 in interest.
High-yield savings accounts and tax consequences
A high-yield savings account earns significantly more interest than a traditional savings account — sometimes 4% to 5% annually, compared to 0.01% or less at many large banks. This means you earn more money, but you also owe more in taxes on that money.
If you have $10,000 in a high-yield account earning 4.5%, you earn $450 in interest per year. At a 22% federal tax rate, you owe roughly $99 in federal tax on that interest. At a traditional savings account earning 0.01%, you earn $1 in interest and owe roughly $0.22 in tax.
The higher interest is still worth it for most people — earning $450 and paying $99 in tax leaves you $351 ahead. But it is important to understand that the interest is taxable and plan accordingly when you file your return.
Reporting interest on your tax return
On the federal return, you report interest income on Schedule B (Interest and Ordinary Dividends) if you have more than $1,500 in interest and dividends combined. If you have less than $1,500, you can report it directly on Form 1040, line 1b.
You list each source of interest (each bank or account) and the amount from the 1099-INT. If you have multiple accounts at the same bank, the bank combines them on one 1099-INT. Add up all the interest from all your forms and enter the total on your return.
If you did not receive a 1099-INT but earned interest (because it was under $10), you still report it. Use your bank statements to calculate the total and include it on your return.
What happens if you do not report interest income
The IRS receives a copy of every 1099-INT your bank sends you. If you do not report the interest on your return and the IRS notices the discrepancy, they will send you a notice. You will owe the tax you should have paid, plus a penalty (usually 20% of the unpaid tax) and interest on both amounts.
If the interest was small and you simply forgot, the IRS may waive the penalty if you file an amended return quickly. But if the pattern continues or the amount is large, penalties add up fast. It is simpler to report the interest when you file.
Frequently Asked Questions
Do I owe taxes on money I deposit into my savings account?
No. You only owe taxes on the interest the bank pays you, not on your own deposits. The money you put in is money you already earned and paid taxes on (or will pay taxes on if it came from untaxed sources like a gift). Only the interest is new income.
What if I have savings accounts at multiple banks?
Each bank sends you a separate 1099-INT if you earned $10 or more at that bank. You add up all the interest from all your 1099-INT forms and report the total on your tax return. The IRS receives copies of all of them, so they will know your total interest income.
Can I deduct savings account fees from the interest I report?
No. You report the full interest amount on your return. Savings account fees are not deductible as a tax write-off. However, if a bank charged you a fee and also paid you interest, the interest is still taxable even though the fee reduced your net gain.
Do I owe taxes on interest if I am a minor with a savings account?
Yes. A minor's interest income is taxable and must be reported. If the minor's total income is below the standard deduction for their filing status, they may not owe federal tax, but they should still file a return to report the interest. A parent or guardian typically files the return on the minor's behalf.
What if I closed my savings account during the year?
You still owe tax on all interest earned in that account during the year, even if you closed it. The bank reports the interest on a 1099-INT based on the interest paid through the date you closed the account. Report it on your return as you normally would.