Yes, you owe federal income tax on savings account interest

The interest your bank pays you on a savings account is taxable income. The IRS treats it the same way it treats wages or freelance earnings — you report it on your tax return and pay income tax on it at your regular rate. Your bank will send you a Form 1099-INT each January showing how much interest you earned the previous year, and you use that form to report the amount to the IRS.

The amount of tax you owe depends on your overall income and tax bracket, not on the interest amount alone. If you earned $50 in interest and you're in the 22% tax bracket, you don't automatically owe $11 — you owe tax on that $50 at whatever your marginal rate is when combined with your other income. For many people with modest savings, the tax bill is small because interest rates on regular savings accounts are low and the interest earned is low.

Some states also tax savings account interest as part of state income tax, though a few states do not. Check your state's tax rules or ask your tax preparer whether your state taxes interest income.

Key Takeaways

  • Banks report savings account interest to the IRS on Form 1099-INT, which you receive by January 31 each year.
  • You must report this interest on your federal tax return and pay income tax on it at your regular tax rate.
  • Some states tax savings interest as part of state income tax, while others do not — check your state's rules.
  • High-yield savings accounts earn more interest than regular savings accounts, which means a larger tax bill, but the interest rate is still usually modest.
  • If you earn less than $10 in interest in a year, your bank may not send a Form 1099-INT, but you still owe tax on that income if you file a return.

When your bank sends you Form 1099-INT

Your bank mails or makes available Form 1099-INT by January 31 of the year after you earned the interest. If you earned interest in 2024, you'll receive the form in January 2025. The form shows the total interest paid to you during that calendar year.

If you have multiple savings accounts at different banks, you'll receive a separate 1099-INT from each bank that paid you interest. You add up all the interest from all your forms and report the total on your tax return. The IRS also receives a copy of each 1099-INT your bank sends, so they know how much interest you earned.

Some banks allow you to view your 1099-INT online through your account portal rather than mailing a paper copy. Check your bank's website or call to find out how they deliver the form.

How much tax you actually owe on savings interest

The tax you owe is based on your tax bracket, not a flat rate. If you're in the 12% federal tax bracket, you pay 12% on the interest. If you're in the 24% bracket, you pay 24%. The interest gets added to your other income, and your total income determines which bracket you fall into.

Example: You earned $500 in savings interest and your other income puts you in the 22% tax bracket. You owe roughly $110 in federal tax on that interest (22% of $500). If you also live in a state that taxes interest and your state rate is 5%, you owe another $25 in state tax. Your total tax bill is about $135.

If your interest income is very small — under $10 for the year — your bank may not send a Form 1099-INT. However, you still owe tax on that income if you file a return. Many people with small interest amounts don't owe enough tax to change their overall tax bill, especially if they're getting a refund from other sources like withholding.

High-yield savings accounts and higher tax bills

High-yield savings accounts pay interest rates that are significantly higher than regular savings accounts — sometimes 4% to 5% annually, compared to 0.01% or less at traditional banks. This means you earn more interest, which is good for your savings, but it also means a larger amount to report and a larger tax bill.

If you have $10,000 in a high-yield account earning 4.5% annually, you'll earn $450 in interest per year. At a 22% tax rate, that's roughly $99 in federal tax. With a regular savings account earning 0.01%, you'd earn $1 in interest and owe almost no tax. The higher rate is still worth it for your savings growth, but you should expect to owe more tax.

Keep track of which accounts are high-yield and which are regular, because you'll need to add up all the interest from all your accounts when you file your taxes.

State taxes on savings interest

Most states tax savings account interest as part of their state income tax system. However, a handful of states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — none of which have a state income tax.

If you live in a state with income tax, you'll likely owe state tax on your savings interest in addition to federal tax. Your state tax return will ask for your interest income, and you'll use the same Form 1099-INT your bank sent you. Some states have different tax rates or brackets than the federal government, so your state tax bill may be higher or lower than your federal bill.

If you move to a different state during the year, you may owe tax to both states on the interest earned while you lived in each one. Check your new state's tax rules or talk to a tax preparer about how to handle this.

What to do if you didn't receive a Form 1099-INT

If you earned interest but didn't receive a Form 1099-INT by early February, contact your bank and ask for it. Banks are required to send the form by January 31, so if it's mid-February and you haven't received it, follow up. You can usually request a copy online or by phone.

If your bank says they didn't send one because you earned less than $10 in interest, that's allowed under IRS rules — banks don't have to send a 1099-INT for very small amounts. However, you still owe tax on that interest if you file a return. Report it on your tax return even without the form.

If you earned interest at a bank that has since closed or merged, contact the successor bank or the FDIC if the bank failed. They can provide records of interest paid to you.

Frequently Asked Questions

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

Your bank doesn't have to send you a Form 1099-INT for interest under $10, but you still owe tax on it if you file a return. Add it to your tax return manually. Many people with small interest amounts don't see a change in their overall tax bill because the amount is so small.

What if I earned interest in multiple savings accounts?

Add up the interest from all your 1099-INT forms and report the total on your tax return. You'll receive a separate form from each bank, but you combine them into one line item when you file. The IRS receives copies of all your forms, so they'll 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 tax return. You cannot subtract fees or other costs. However, if you paid investment-related fees or advisor fees, those may be deductible under different rules — talk to a tax preparer about your specific situation.

Does a money market account get taxed the same way as a savings account?

Yes. Money market accounts, certificates of deposit (CDs), and other interest-bearing accounts all work the same way for tax purposes. Your bank sends you a 1099-INT, and you report the interest as income on your tax return.

What if I moved money between savings accounts during the year?

Moving money between your own accounts doesn't change anything. You report all the interest you earned across all accounts. The bank that held the money when interest was paid reports it on the 1099-INT, so you'll see the interest on the forms from each bank where you had money.