You pay federal income tax on interest your savings account earns, but not on the money you deposit
The deposits you put into a savings account are not taxable — that is money you already earned and paid taxes on. The interest the bank pays you on that balance, however, counts as income to the IRS. You report it on your federal tax return each year, and you may owe income tax on it depending on how much interest you earned and your overall income.
Most savings accounts earn very little interest, so many people owe no tax on it. But if you have a high-yield savings account, a certificate of deposit (CD), or a large balance, the interest can add up enough to matter. The bank will send you a form called a 1099-INT each January if you earned $10 or more in interest during the year, and that is the number you use when you file your taxes.
Key Takeaways
- Interest earned on a savings account is taxable income to the federal government, even if the amount is small.
- Your bank sends you a 1099-INT form in January if you earned $10 or more in interest during the previous year.
- You report the interest amount on your federal tax return; whether you owe tax depends on your total income and tax bracket.
- Some states tax savings account interest, and some do not — check your state's rules if you live in a state with income tax.
- High-yield savings accounts earn more interest than traditional savings accounts, which means more tax liability.
When the IRS requires you to report savings interest
You must report interest on your federal tax return if you earned any amount at all, even if the bank did not send you a 1099-INT form. The $10 threshold only determines whether the bank is required to send the form — it does not mean you can ignore interest below that amount.
In practice, if you earned less than $10 in interest, you likely owe no federal tax on it because the standard deduction (the amount of income you can earn tax-free) is much higher. But you still report it if you file a return. If you earned $10 or more, the bank will mail or email you the 1099-INT by January 31, and you use that form to fill out your tax return.
How to report savings account interest on your tax return
When you file your federal return, you report the interest amount on Schedule 1 (Form 1040), which is the form where you list other income beyond wages. The interest goes on the line labeled "Interest" and gets added to your total income for the year. If you use tax software, it will walk you through entering the 1099-INT information, and the software calculates whether you owe tax.
If you have multiple savings accounts, you add up all the interest from all of them and report the total. If you received multiple 1099-INT forms, add them together before entering the total on your return. The IRS matches the 1099-INT forms the banks send them against the amounts you report, so accuracy matters.
State taxes on savings account interest
Whether you owe state income tax on savings interest depends on where you live. Most states that have an income tax tax savings account interest the same way the federal government does — you report it and pay tax if your total income is high enough. A few states do not tax interest income at all, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
If you live in a state with income tax, check your state's tax agency website or your state tax form instructions to see where to report the interest. Some states use a form similar to the federal Schedule 1, while others have their own interest income line. The amount you report to your state is usually the same as the amount you reported to the IRS.
The difference between high-yield and traditional savings accounts for tax purposes
A high-yield savings account earns significantly more interest than a traditional savings account at a brick-and-mortar bank. A traditional account might earn 0.01% annually, while a high-yield account might earn 4% to 5%. That difference means much more taxable income.
For example, $10,000 in a traditional savings account earning 0.01% generates $1 in annual interest — below the reporting threshold. The same $10,000 in a high-yield account earning 4.5% generates $450 in interest, which you must report and likely owe tax on. The tax you owe depends on your tax bracket, but at a 22% federal rate, that $450 would cost you about $99 in federal tax. This is not a reason to avoid high-yield accounts, but it is a cost to factor in when comparing options.
What to do if you did not receive a 1099-INT
If you earned $10 or more in interest and did not receive a 1099-INT by the end of January, contact the bank directly. Ask them to send the form or provide the interest amount in writing. Banks sometimes mail forms to an outdated address or email, so check your spam folder first.
If the bank cannot locate the form and cannot tell you the interest amount, you can often find it in your online account history or on your year-end account statement. Write down the amount and report it on your tax return even without the official form. The IRS has a copy of the 1099-INT the bank filed, so reporting the correct amount protects you.
How interest compounds and affects your tax bill
Most high-yield savings accounts compound interest daily or monthly, meaning the interest you earn starts earning interest too. This makes the amount you owe tax on grow faster than simple interest would. If you leave money in the account all year, you report the total interest earned by December 31, not just the interest on your original deposit.
Some people move money between accounts during the year to manage tax liability, but this rarely saves money because you still owe tax on all interest earned regardless of when you earned it. A better approach is to understand how much interest you will earn, budget for the tax, and decide whether the after-tax return is worth it compared to other uses for the money.
Frequently Asked Questions
Do I owe taxes on money I transfer between my own savings accounts?
No. Transfers between your own accounts are not income. Only the interest the bank pays you is taxable. Moving $5,000 from one savings account to another does not create any tax liability.
What if I earned interest but the bank sent the 1099-INT to the wrong address?
Contact the bank and ask them to send a corrected form or provide the interest amount. You can also report the interest based on your account statements. The IRS has the original 1099-INT, so reporting the correct amount prevents problems later.
Can I deduct savings account fees from the interest I report?
No. You report the gross interest the bank paid you, not the interest minus fees. However, if you paid fees to manage your investments or tax preparation related to investment income, those may be deductible under other rules — check with a tax professional about your specific situation.
Do I owe taxes on interest if I am a minor with a savings account?
Yes. A minor must report interest income on a tax return if the amount is above the filing threshold for their situation. A parent or guardian typically files the return on the minor's behalf. The interest is taxed at the minor's rate, not the parent's rate.
What happens if I do not report savings account interest on my tax return?
The IRS receives a copy of the 1099-INT from the bank and will notice if the amount does not match your return. Unreported income can result in penalties, interest charges, and an audit. Report the interest even if the amount is small to avoid these consequences.