You owe federal income tax on savings account interest, but only if your total interest for the year exceeds $10

The IRS treats interest earned in a savings account as taxable income. Your bank will send you a Form 1099-INT in January if you earned $10 or more in interest during the previous year. You report this amount on your federal tax return, and it gets taxed at your ordinary income tax rate — the same rate as wages or salary.

If you earned less than $10 in interest, your bank does not have to send you a 1099-INT, but you may still owe tax on that interest. The $10 threshold is when the bank must report it to the IRS, not when you stop owing tax. Many people with small savings balances never reach $10 in annual interest and therefore never file a return that includes this income, which is fine if they have no other tax obligation.

State income tax works the same way in most states that have an income tax. You report the same interest amount on your state return. A few states — including Pennsylvania, New Hampshire, and Tennessee — do not tax interest income at all, so if you live in one of those states, you only owe federal tax.

Key Takeaways

  • You owe federal income tax on all savings account interest, regardless of the amount, though your bank only reports it to the IRS if it exceeds $10.
  • Your bank sends you Form 1099-INT in January showing the interest you earned the previous year, and you report that amount on your tax return.
  • Interest is taxed as ordinary income at your regular tax rate, not at a special lower rate.
  • Most states with income tax also tax savings account interest the same way, but a handful of states do not tax interest income at all.
  • If you earned interest but did not receive a 1099-INT because it was under $10, you still report it on your return if you file one.

How to report savings account interest on your tax return

When you file your federal return, you report the interest amount from your 1099-INT on Schedule 1 (Form 1040), which feeds into your total income. If you use tax software, it will walk you through entering this information. If you file by hand or work with a tax preparer, give them the 1099-INT form your bank sent you.

The interest gets added to your other income — wages, self-employment income, investment gains — and taxed at whatever your marginal tax rate is. If you are in the 12 percent tax bracket, you owe roughly 12 cents in federal tax for every dollar of interest. State tax works the same way on your state return.

You do not need to do anything special to report this. You do not send the 1099-INT to the IRS; your bank already did that electronically. You just include the number on your return so the IRS can match it to what your bank reported.

When you might not owe tax on savings interest

If your total income for the year is low enough, you may not owe federal income tax at all, even if you earned interest. The IRS sets a standard deduction each year — for 2024, it is $14,600 for a single person and $29,200 for a married couple filing jointly. If your total income (including interest) is below that number, you do not owe federal tax.

For example, if you are a single person with no job and earned $500 in savings interest, your total income is $500, which is well below the $14,600 standard deduction. You would not owe federal tax. However, if you earned $15,000 in interest, your income exceeds the standard deduction by $400, and you would owe tax on that $400 (at your tax rate).

Some people — dependents, students, people over 65 — have different standard deduction amounts. Check the IRS website or ask a tax preparer what your standard deduction is for the year you are filing.

The difference between savings accounts and other accounts

A regular savings account at a bank or credit union is taxed on interest. A money market account works the same way. A certificate of deposit (CD) is also taxed on interest, though the timing can be different — you may owe tax on the interest even before the CD matures, depending on how it is structured.

A Roth IRA or traditional IRA is different. Interest earned inside an IRA is not taxed each year; it grows tax-deferred. You do not report it on your return. However, when you withdraw money from a traditional IRA in retirement, that withdrawal is taxed as income. Roth IRA withdrawals are tax-free if you follow the rules.

A 529 college savings plan also grows tax-deferred, and withdrawals for may have access to education expenses are tax-free. Interest in these accounts does not appear on a 1099-INT.

What to do if you did not receive a 1099-INT

If you earned interest but your bank did not send you a 1099-INT, it usually means the interest was under $10. You can contact your bank and ask for the exact amount, or log into your online account to see the interest posted each month.

If you earned $10 or more and did not receive a 1099-INT by early February, contact your bank. They may have sent it to an old address or made an error. Ask them to issue a corrected form or provide the interest amount in writing so you can report it yourself.

If you file a tax return and earned interest that was not reported to the IRS (because it was under $10), you can still report it. Include it in your interest income on Schedule 1. The IRS will not penalize you for reporting income that was not on a 1099-INT.

How high-yield savings accounts affect your taxes

A high-yield savings account earns more interest than a traditional savings account — sometimes 4 or 5 percent annually instead of 0.01 percent. This means you will owe more tax on the interest, but you still owe tax the same way: the bank sends a 1099-INT, you report it on your return, and it is taxed as ordinary income.

The higher interest does not change the tax treatment. If you earn $500 in interest from a high-yield account, you report $500 on your return, just as you would with any other savings account. The tax rate is the same.

Some people move money to high-yield accounts specifically because the interest outweighs the tax cost. If you earn $500 in interest and owe $60 in federal tax (at a 12 percent rate), you still come out $440 ahead compared to keeping the money in a 0.01 percent account.

State taxes on savings interest

Most states with an income tax tax savings interest the same way the federal government does. You report the 1099-INT amount on your state return, and it is taxed at your state rate.

A few states do not tax interest income at all. Pennsylvania, New Hampshire, and Tennessee have no tax on interest or dividend income, even though they have other income taxes. If you live in one of these states, you only owe federal tax on your savings interest.

If you live in a state with no income tax — Florida, Texas, Wyoming, and others — you owe no state tax on savings interest. You still owe federal tax unless your income is below the standard deduction.

Frequently Asked Questions

Do I have to file a tax return if I only earned interest and no other income?

Only if your interest income exceeds your standard deduction. For 2024, a single person needs to file if they earned more than $14,600 in income. If you earned $8,000 in interest, you do not have to file. If you earned $16,000, you do.

What if I earned interest in multiple savings accounts?

You add up all the interest from all your accounts and report the total on your tax return. Your banks will each send a 1099-INT for their own account, so you will receive multiple forms. Add them together when you file.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount on your return. Fees are not deductible against interest income. However, if you paid investment advisory fees or other specific financial fees, you may be able to deduct them in other ways — ask a tax preparer about your situation.

Does interest earned in a joint savings account get split between owners for tax purposes?

Not automatically. Whoever owns the account — or whoever the bank lists as the account holder — receives the 1099-INT. If two people own the account equally and want to split the tax burden, you can file amended returns or work with a tax preparer to report it correctly, but the bank will initially report it to one person's Social Security number.

What happens if I move money between savings accounts during the year?

Moving money does not create a taxable event. You only owe tax on the interest the money earned, not on the transfer itself. If you move $10,000 from one account to another, you report the interest earned in each account, but the transfer is not taxable income.