Interest counts as income the IRS expects you to report
Yes, the interest your savings account earns is taxable income. The bank or credit union pays you interest on your balance, and that interest is treated the same way as wages or salary — you owe federal income tax on it, and possibly state income tax depending on where you live.
The IRS requires you to report all interest income on your tax return, even if the amount is small. Your bank will send you a Form 1099-INT in January showing how much interest you earned during the previous year. You use this form to fill out your tax return.
How much tax you actually owe depends on your total income and your tax bracket. Someone in a 22% tax bracket pays roughly 22 cents in federal tax for every dollar of interest earned. Someone in a lower bracket pays less. The exact amount varies by your situation.
Key Takeaways
- All interest earned on savings accounts must be reported to the IRS as taxable income on your federal tax return.
- Your bank sends you a Form 1099-INT in January showing the interest you earned during the previous year.
- The tax you owe on interest depends on your total income and your tax bracket, not on the interest amount alone.
- Interest income is reported on Schedule 1 of Form 1040, and you must include it even if the amount is under $10.
- Some savings vehicles like Roth IRAs and 529 education plans let interest grow tax-free, but regular savings accounts do not.
When your bank sends you the 1099-INT form
Banks and credit unions send Form 1099-INT to customers who earned $10 or more in interest during the calendar year. You receive it by January 31 of the following year. The form shows the total interest paid to your account during the previous year.
If you earned less than $10 in interest, the bank is not required to send you a 1099-INT, but you still owe tax on that interest. You can find the exact amount on your account statements or by logging into your online banking portal and reviewing the interest deposits.
The 1099-INT also shows any federal income tax that was withheld from your interest, though most savings accounts do not withhold tax. You will receive copies: one for your records, one to send with your tax return, and one that goes to the IRS.
How interest income affects your tax bracket and refund
Interest income is added to your other income — wages, self-employment earnings, investment gains — to calculate your total taxable income for the year. This total determines which tax bracket you fall into and how much federal tax you owe.
If you earn $50,000 in wages and $500 in savings account interest, the IRS treats you as having $50,500 in taxable income. Depending on your filing status and deductions, this might push you into a higher tax bracket or reduce a refund you were expecting.
The impact is usually small for most people. A savings account earning 4% or 5% annual interest on a $10,000 balance generates $400 to $500 per year in interest — roughly $88 to $110 in federal tax if you are in the 22% bracket. But if you have multiple accounts or a large balance, the total can be significant.
State income tax on savings account interest
Most states that have an income tax also tax savings account interest at the same rate they tax other income. A few states — including Pennsylvania, New Hampshire, and Tennessee — do not tax interest income at all, or tax it only under certain conditions.
If you live in a state with income tax, you will report the same interest income on your state tax return that you report to the IRS. The state uses the 1099-INT form or your own records to verify the amount.
New Hampshire taxes interest and dividend income but not wages. Pennsylvania taxes wages and most income but exempts interest and dividends. If you live in one of these states, check your state's tax website or speak with a tax preparer to understand how your interest is treated.
Savings vehicles where interest is not taxed annually
Roth IRAs and Roth 401(k)s allow interest and investment gains to grow without annual tax. You pay tax on the money when you contribute it, and then the interest is never taxed as long as you follow the withdrawal rules.
529 education savings plans also allow interest to grow tax-free if the money is used for may have access to education expenses like tuition, room and board, or books. If you withdraw the money for non-education purposes, you owe tax on the interest portion plus a 10% penalty.
Health Savings Accounts (HSAs) work similarly — interest grows tax-free as long as you use withdrawals for may have access to medical expenses. Regular savings accounts, money market accounts, and certificates of deposit (CDs) do not have this tax advantage.
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 early February, contact your bank directly. Ask them to send you a corrected form or a statement showing the interest earned. Keep records of all interest deposits from your account statements.
If the bank cannot locate the form or made an error, you can still report the interest on your tax return using your own records. The IRS has a copy of the 1099-INT the bank filed, so your return should match. If there is a discrepancy, the IRS will contact you.
Do not skip reporting interest income because you did not receive a form. The IRS receives a copy of every 1099-INT filed, and mismatches between what you report and what the bank reported trigger automated notices.
Interest from different account types and how they are taxed
| Account Type | Interest Taxed Annually | Form Received | Notes |
|---|---|---|---|
| Regular Savings Account | Yes | 1099-INT (if $10+) | All interest is taxable income each year. |
| Money Market Account | Yes | 1099-INT (if $10+) | Interest treated same as savings account. |
| Certificate of Deposit (CD) | Yes | 1099-INT (if $10+) | Interest taxed in the year earned, even if you do not withdraw it. |
| Roth IRA | No | None | Interest grows tax-free; no annual reporting needed. |
| 529 Education Plan | No (if used for education) | None | Interest tax-free if withdrawn for may have access to education expenses. |
| Health Savings Account | No (if used for medical) | None | Interest tax-free if withdrawn for may have access to medical expenses. |
Frequently Asked Questions
Do I have to report interest if I earned less than $10?
Yes. The bank does not have to send you a 1099-INT if you earned less than $10, but you still owe tax on that interest. Find the exact amount on your account statements and report it on your tax return. The IRS expects all interest income to be reported, regardless of amount.
Can I deduct losses from my savings account against the interest I earned?
No. Interest income is always taxable, and you cannot offset it with losses from a savings account. Savings accounts do not generate losses — they only earn interest or lose value due to inflation. You can only deduct investment losses from investment accounts like brokerage accounts.
What if I moved money between savings accounts during the year?
Moving money between your own accounts does not change how interest is taxed. You report the total interest earned across all accounts on your tax return. Each bank sends a separate 1099-INT for the interest paid by that bank, and you add them all together.
Is interest from a joint savings account taxed differently?
The interest is taxed based on who owns the account and who reports it. If the account is jointly owned, you and the other owner typically split the interest income and each report your share. The bank may send separate 1099-INT forms to each owner, or one form to the primary account holder — check with your bank about how they report joint accounts.
Do I owe tax on interest if I have not withdrawn it from the account?
Yes. The IRS taxes interest in the year it is earned, not in the year you withdraw it. Even if the interest sits in your account and you never touch it, you owe tax on it that year. This is called "accrual basis" taxation and applies to all regular savings accounts.