Yes, you report all savings account interest as income on your federal tax return

The IRS requires you to report every dollar of interest your savings account earns, no matter how small. Your bank sends you a Form 1099-INT each January showing the interest paid to you during the previous year. You then report that amount on your tax return using Schedule B (if you have more than $1,500 in interest income) or directly on Form 1040 (if you have $1,500 or less).

This applies to all types of savings accounts: regular savings, money market accounts, certificates of deposit (CDs), and high-yield savings accounts. The amount of interest does not matter—even $2 in interest must be reported. If you do not report it and the IRS matches the 1099-INT your bank filed against your return, you will owe back taxes plus penalties and interest.

Some states also tax interest income, though the rules vary. A few states exempt interest income entirely, while others tax it at the same rate as federal income tax. Check your state's tax website or ask a tax preparer about your specific state's rules.

Key Takeaways

  • Your bank reports all 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 even if the amount is very small or you did not withdraw the money.
  • Interest income is taxed at your ordinary income tax rate, not at a special capital gains rate.
  • Some states tax interest income and some do not, so check your state's rules separately from federal requirements.
  • If you earned less than $1,500 in interest, you report it directly on Form 1040; more than that requires Schedule B.

When your bank sends Form 1099-INT and what it shows

Your bank mails or makes available a Form 1099-INT by January 31 for all interest paid during the previous calendar year. The form shows the total interest earned in Box 1. If you had multiple accounts at the same bank, the interest from all of them is combined on one form. If you banked at different institutions, you will receive a separate 1099-INT from each one.

Keep this form with your tax records. You do not mail it to the IRS—your bank does that automatically. However, you need it to fill out your own return accurately. If you do not receive a 1099-INT by early February, contact your bank and ask them to send it or provide the interest total another way.

The form also shows federal income tax withheld, if any. This is rare for savings account interest but can happen in certain situations. If tax was withheld, that amount reduces what you owe when you file.

How interest income affects your tax bracket and what you owe

Interest income is added to your other income (wages, self-employment income, capital gains, and so on) to calculate your total taxable income. It is taxed at your ordinary income tax rate, which depends on your filing status and total income. This is different from long-term capital gains, which often have lower tax rates.

If you earned $500 in interest and your ordinary tax rate is 22 percent, you owe roughly $110 in federal tax on that interest (before any deductions or credits). If you earned $5,000 in interest, the tax owed depends on your total income and tax bracket—it could push you into a higher bracket, meaning some of your other income is also taxed at a higher rate.

This is why high-yield savings accounts, which pay more interest than traditional savings accounts, can increase your tax bill. A high-yield account paying 4 or 5 percent annually will generate more interest income than a regular savings account paying 0.01 percent, and you will owe tax on the difference.

Reporting interest on your tax return

If your total interest income for the year is $1,500 or less, you report it directly on Form 1040, line 2b (labeled "Interest"). You do not need to file Schedule B. Simply enter the total from your 1099-INT form.

If your interest income exceeds $1,500, you must file Schedule B (Form 1040) and list each account or source of interest separately. Schedule B also asks whether you had a foreign account, which triggers additional reporting rules if you did. After you complete Schedule B, you transfer the total to Form 1040, line 2b.

If you are married and filing jointly, combine your interest with your spouse's interest. If you each earned interest, you can report it together on one line or file separate Schedule Bs—the IRS accepts either approach, though filing jointly is simpler.

Interest you earned but did not withdraw or reinvested

You report interest income in the year it is credited to your account, even if you never withdraw it. If your savings account automatically reinvests interest (adding it back to your balance), you still owe tax on it that year. The IRS taxes the interest when you earn it, not when you spend or move the money.

This matters most with CDs and money market accounts that compound interest. If you have a $10,000 CD earning 5 percent annually, you owe tax on $500 in year one even though the money stays in the CD. In year two, you owe tax on the interest earned that year (which is slightly more because of compounding), and so on.

If you withdraw the money before the CD matures, you may owe an early withdrawal penalty charged by the bank. That penalty is separate from your tax bill and does not reduce the interest income you must report.

State taxes on savings account interest

Most states that have an income tax also tax interest income at the same rate as federal income tax. However, some states offer partial or full exemptions. For example, Illinois exempts all interest income from state tax. Pennsylvania taxes interest but offers a credit that often eliminates the tax for residents. Other states have no income tax at all (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming).

Check your state's department of revenue website or ask a tax preparer whether your state taxes interest income and whether any exemptions apply to you. If you live in one state but earned interest from an account in another state, you typically report the interest to the state where you live, not where the account is held.

If your state does tax interest, you will report it on your state income tax return using a form similar to Schedule B. Some states allow you to file electronically with your federal return; others require a separate state filing.

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

If you earned interest but your bank did not send a 1099-INT by early February, contact the bank and ask for it. Provide your account number and the year in question. The bank is required to send it, and if they cannot locate it, they can issue a corrected form or provide a written statement of the interest earned.

If you cannot get a 1099-INT from the bank, you can still report the interest on your tax return. Write the amount you earned (check your account statements or online banking records) on Schedule B or Form 1040 line 2b, and note "No 1099-INT received" next to the entry. Keep copies of your bank statements showing the interest as proof in case the IRS asks questions later.

Do not skip reporting the interest just because you did not receive the form. The IRS has a copy of the 1099-INT your bank filed, and if your return does not match, you will receive a notice and owe back taxes plus penalties.

Interest from joint accounts and accounts held by minors

If you own a savings account jointly with another person, the bank reports the interest to both of you on separate 1099-INT forms, or it reports the full amount to one person and you must split it on your tax returns. Check the 1099-INT you receive to see how much interest the bank attributed to you. If the split is wrong, contact the bank and ask for a corrected form.

If you have a custodial account for a minor child, the interest is reported on the child's Social Security number. The child (or their parent, if the child is too young to file) must report this interest on the child's tax return. Some children with low income may not be required to file a return, but if they have interest income, they should check the IRS filing requirements for dependents.

If you are the trustee or executor of an estate or trust with a savings account, the interest may be reported on the trust's tax return (Form 1041) rather than your personal return. This depends on whether the trust is required to file and how the interest is distributed. Consult a tax professional if you are managing a trust or estate account.

Frequently Asked Questions

Do I have to report interest if I earned less than $100?

Yes. The IRS requires you to report all interest income, regardless of the amount. Your bank will report it on Form 1099-INT if the interest is $10 or more, but even smaller amounts must be reported if you know about them. Failing to report small amounts can trigger an audit if the IRS matches your return against the bank's filing.

What if I earned interest in a different year than when I received the 1099-INT?

Report the interest in the year it was earned and credited to your account, not the year you received the 1099-INT. The 1099-INT shows the calendar year the interest was earned. If your bank made an error and reported interest in the wrong year, ask for a corrected form and file an amended return if necessary.

Can I deduct any expenses related to my savings account?

No. Interest income is reported as-is with no deductions. You cannot deduct account fees, the cost of a safe deposit box, or any other expenses related to earning the interest. These are personal expenses and are not deductible on your federal tax return.

Do I report interest from a savings account held overseas?

Yes, and you may have additional reporting requirements. All worldwide interest income must be reported on your U.S. tax return. If you have a foreign financial account with more than $10,000 at any time during the year, you must file FinCEN Form 114 (FBAR) by April 15. Consult a tax professional if you have foreign accounts.

What happens if I report the interest wrong on my tax return?

If you underreport interest, the IRS will likely catch it when they match your return against the 1099-INT your bank filed. You will receive a notice showing the discrepancy, and you will owe the tax you missed plus interest and penalties. Filing an amended return (Form 1040-X) before the IRS contacts you can reduce or eliminate penalties in some cases.