The tax on savings account interest depends on how much you earn and your tax bracket
Interest earned in a savings account is taxed as ordinary income by the IRS. The amount of tax you owe is not deducted automatically by your bank — instead, you report the interest when you file your tax return, and the tax owed depends on your total income for the year and your filing status. A bank will send you a Form 1099-INT in January showing how much interest you earned, but that form does not determine your tax bill by itself.
The actual tax rate on your interest ranges from 10% to 37% of your interest earnings, depending on which tax bracket you fall into. Someone earning $25,000 per year pays a lower rate than someone earning $150,000. If your savings account earned $50 in interest and you are in the 22% tax bracket, you would owe roughly $11 in federal tax on that interest — but only when you file your return, not when the interest posts to your account.
State income tax may also apply. Most states tax savings account interest the same way the federal government does, though a few states (including Tennessee, Texas, and Wyoming) do not tax interest income at all. Your state tax rate, if you owe one, is separate from your federal rate and gets added on top.
Key Takeaways
- Your bank does not withhold tax from savings account interest — you pay tax when you file your return based on your total income for the year.
- The federal tax rate on interest ranges from 10% to 37% depending on your tax bracket, not a flat percentage.
- You will receive a Form 1099-INT from your bank in January showing the interest you earned, which you use to report on your tax return.
- Some states do not tax interest income, while others tax it at rates ranging from roughly 1% to 13%, depending on the state.
- If you earn less than the standard deduction for your filing status, you may owe no federal tax on your interest even though you earned it.
Why your bank does not withhold tax upfront
Banks are required to report interest to the IRS, but they do not calculate or remove tax from your account. The IRS taxes interest as income, and income tax is your responsibility to pay when you file — not something the bank handles. This is different from a paycheck, where your employer withholds tax before you receive the money.
The reason is that the amount of tax you owe depends on your entire financial picture for the year: your wages, investment gains, deductions, filing status, and dependents. Your bank has no way to know any of that, so it cannot calculate what you actually owe. Instead, you report the interest yourself on your tax return, and the IRS compares it to the Form 1099-INT your bank sent them.
How federal tax brackets work on interest income
Interest is added to your other income and taxed at your marginal rate — the highest tax bracket you reach. If you earned $50,000 in wages and $200 in interest, the IRS treats that $200 as income on top of the $50,000, and it gets taxed at whatever bracket that $50,200 falls into.
For 2024, the 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 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 |
| 37% | $609,351 and above | $731,201 and above |
If you earned $30,000 in wages and $500 in interest as a single filer, your taxable income is $30,500. That falls in the 12% bracket, so the $500 interest would be taxed at 12%, meaning you owe $60 in federal tax on that interest. If you earned $100,000 in wages and $500 in interest, that $500 would be taxed at 22%, so you would owe $110.
When you might owe no tax on savings interest
If your total income is below the standard deduction for your filing status, you do not owe federal income tax, even if you earned interest. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If you earned $12,000 in wages and $300 in interest, your total is $12,300 — below the standard deduction — so you would owe no federal tax.
You still have to file a tax return to report the interest if your bank sent you a Form 1099-INT, but you would not owe any tax. This is common for people with part-time jobs, retirees with modest income, or students working their first year.
State tax rules vary. Some states have their own standard deduction, and a few states do not tax interest at all. Check your state's tax authority website to see whether your interest is taxable at the state level.
State income tax on savings account interest
Most states that have an income tax treat savings account interest the same way the federal government does — as ordinary income taxed at your state tax bracket. State tax rates range from roughly 1% to 13%, depending on the state. A few states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
If you live in a state with income tax, you will report the same interest income on your state return that you reported to the IRS. Your state will use its own tax brackets and rates to calculate what you owe. Some states also allow deductions or credits that the federal government does not, so your state tax bill may be higher or lower than your federal bill even though the interest amount is the same.
If you moved during the year or work in a state different from where you live, you may owe tax to both states. This is rare for savings account interest alone, but it can happen if you have other income sources.
What to do when you receive your Form 1099-INT
Your bank will mail or email you a Form 1099-INT by January 31 each year if you earned $10 or more in interest. This form shows the interest amount and your bank's tax ID number. You will receive a copy for your records and a copy that the bank sends to the IRS.
When you file your tax return, you report the interest amount from the 1099-INT on Schedule 1 (for federal returns) or on your state return's interest income line. If you have multiple savings accounts, you add up all the interest from all the 1099-INTs and report the total. Do not send the 1099-INT itself with your return — just the amount.
If you did not receive a 1099-INT but earned interest, you still have to report it. Contact your bank to ask for a copy. If the bank cannot provide one, you can report the interest based on your own records of what your account earned.
How high-yield savings accounts affect your tax bill
High-yield savings accounts earn more interest than traditional savings accounts, which means you will owe more tax on that interest. If a regular savings account earns 0.01% and a high-yield account earns 4.5%, the difference in interest is significant — and so is the difference in tax owed.
For example, $10,000 in a regular savings account earning 0.01% generates $1 in interest per year, which is taxed at your marginal rate. The same $10,000 in a high-yield account earning 4.5% generates $450 in interest, which is taxed at your marginal rate. If you are in the 22% bracket, you owe $0.22 on the first account and $99 on the second. The higher interest is worth it for most people, but it is important to know that the tax bill is higher too.
Frequently Asked Questions
Do I have to pay tax on interest if I earned less than $10?
Your bank does not have to send you a Form 1099-INT if you earned less than $10, but you still owe tax on the interest if your total income exceeds the standard deduction. Report the interest on your tax return based on your account statements or a letter from your bank.
What if I earned interest in multiple savings accounts?
Add up the interest from all your accounts and report the total on your tax return. You will receive a separate 1099-INT from each bank, but you combine them into one number when you file. The IRS will receive copies of all the 1099-INTs and will match them to your return.
Can I deduct savings account interest as a loss?
No. Interest income is taxed, but you cannot deduct it as a loss. You report the full amount of interest you earned, and you pay tax on it at your marginal rate. The only way to reduce the tax is to earn less interest or to have deductions or credits that lower your overall tax bill.
Does interest earned in a CD get taxed the same way?
Yes. Certificates of deposit (CDs) earn interest that is taxed as ordinary income, just like savings accounts. You will receive a 1099-INT for CD interest, and you report it the same way on your tax return. The tax rate depends on your tax bracket, not on the type of account.
What if I moved to a state with no income tax after earning interest?
You owe tax to the state where you lived when you earned the interest, not where you live when you file. If you earned interest in a state with income tax and then moved to a state without one, you still owe tax to the first state on that interest. Report it on your tax return for the year you earned it.