Yes, you must report all taxable interest income, even from small savings accounts

The IRS requires you to report interest earned on savings accounts, money market accounts, and certificates of deposit on your federal tax return. This is true regardless of the amount — there is no minimum threshold that lets you skip reporting. If your bank paid you interest, and that interest is taxable, it belongs on your return.

Your bank will send you a Form 1099-INT if you earned $10 or more in interest during the year. If you earned less than $10, the bank is not required to send the form, but you still must report the interest. The IRS knows about interest your bank paid because the bank reports it separately to the IRS as well.

Failing to report interest income can trigger an audit, penalties, and interest charges on the unpaid tax. The IRS matches 1099 forms to tax returns automatically, so unreported interest is one of the easiest things for them to catch.

Key Takeaways

  • You must report all interest income on your tax return, even amounts under $10 that do not require a 1099-INT form.
  • Your bank sends Form 1099-INT to both you and the IRS when interest reaches $10 or more in a calendar year.
  • Interest from savings accounts, money market accounts, and CDs is taxable at your ordinary income tax rate unless the account is in a tax-advantaged structure like an IRA.
  • The IRS automatically matches 1099-INT forms to your return, so unreported interest is likely to be caught and result in penalties.
  • Some accounts — such as Roth IRAs and certain state education savings plans — hold interest that is not taxable and does not need to be reported.

Where interest income goes on your tax return

Interest from savings accounts is reported on Schedule B (Interest and Ordinary Dividends) if you file Form 1040. You list each source of interest separately, add them up, and enter the total on line 1b of Schedule B. That total then transfers to your main tax return.

If your total interest and dividend income is $1,500 or less, you can report it directly on Form 1040 without filing Schedule B. But if you have multiple accounts or any dividend income, Schedule B is usually the cleaner route and is what most tax software will prepare for you automatically.

The interest is taxed as ordinary income at your regular tax bracket. If you earned $5,000 in interest and you are in the 22% tax bracket, you owe roughly $1,100 in federal tax on that interest (before credits and other adjustments).

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

Banks mail Form 1099-INT by January 31 each year for interest paid during the previous calendar year. The form shows the account holder's name, Social Security number, the bank's name, and the total interest paid in box 1. If you have multiple accounts at the same bank, they may combine the interest on one form or send separate forms depending on how the accounts are registered.

You receive Copy B of the form; the bank sends Copy A to the IRS. The IRS uses that copy to cross-check your return. If you report less interest than the 1099-INT shows, or if you do not report it at all, the IRS will notice the discrepancy and may send you a notice or bill.

Keep your 1099-INT forms with your tax records for at least three years. If the IRS questions your return, you will need to show that you reported the correct amount.

Interest that does not have to be reported

Interest earned inside a traditional or Roth IRA is not reported on your tax return in the year it is earned. The interest compounds tax-free inside the account. When you withdraw money from a traditional IRA in retirement, you pay tax on the entire withdrawal (including the interest), but not on the interest itself as it accumulates.

Interest in a 529 college savings plan or Coverdell Education Savings Account is also not reported annually. The earnings grow tax-free as long as the money is used for may have access to education expenses. If you withdraw money for non-education purposes, you may owe tax on the earnings portion.

Interest in a Health Savings Account (HSA) is not taxable if the account is used only for may have access to medical expenses. Series I and Series EE U.S. Savings Bonds have special rules: interest is not taxed until you cash the bond or it matures, and if used for education, the interest may not be taxed at all.

Regular taxable savings accounts, money market accounts, and CDs held outside these structures always generate taxable interest that must be reported.

What happens if you do not report interest income

The IRS matches 1099-INT forms to tax returns using automated systems. If your return shows no interest income but your bank reported interest to the IRS, a computer flag will likely be raised. The IRS may send you a CP2000 notice proposing additional tax, penalties, and interest.

If you ignore the notice or do not respond correctly, the IRS can assess the tax and begin collection actions. The penalty for underreporting income is typically 20% of the underpaid tax, plus interest that accrues daily. Over time, a small amount of unreported interest can grow into a significant debt.

Intentional failure to report income can also be treated as tax evasion, which carries criminal penalties including fines and imprisonment, though this is rare for simple interest income and usually requires a pattern of deliberate concealment.

How to handle interest from multiple accounts or banks

If you have savings accounts at several banks, each bank will send you a separate 1099-INT (or combine them if you have multiple accounts at the same institution). Add up all the interest from all the forms and report the total on Schedule B.

Some people receive 1099-INT forms from banks they no longer use or accounts that were closed. If the form shows interest you did not actually receive, contact the bank and ask for a corrected form. The bank will issue a corrected 1099-INT (marked as such) and send it to both you and the IRS. Use the corrected form when you file your return.

If you earned interest but did not receive a 1099-INT (because it was under $10 or the bank made an error), you still report it. Write the bank name and the interest amount on Schedule B even without an official form. Keep your own records — bank statements, passbooks, or online account history — to support the amount you report.

Interest from joint accounts and accounts held by minors

If a savings account is held jointly by two people, the bank typically reports all the interest to the Social Security number listed first on the account. The person who receives the 1099-INT is responsible for reporting it, even if the other account holder earned part of the interest. The two account holders must decide between themselves how to split the income for tax purposes and adjust their individual returns accordingly.

If a parent opens a savings account for a minor child, the interest is taxable to the child, not the parent. The bank will issue a 1099-INT in the child's name and Social Security number. The child must report the interest on their own tax return, even if the parent controls the account. A child with interest income may be required to file a return even if they have no other income.

Some states allow a parent to report a child's interest on the parent's return if the child is under a certain age and the interest is below a threshold (often called the "kiddie tax" rules). Check your state's rules and your federal tax software to see if this applies to you.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The bank is not required to send you a 1099-INT for interest under $10, but you must still report it on your tax return. The IRS expects all taxable interest to be reported regardless of amount. Keep your bank statements as proof of the interest you earned.

What if my 1099-INT shows the wrong amount?

Contact your bank immediately and ask for a corrected form. The bank will issue a corrected 1099-INT marked as such and send copies to you and the IRS. File your return using the corrected form. If you have already filed, you may need to file an amended return if the difference is significant.

Can I deduct interest I paid on a loan from interest I earned on savings?

No. Interest you earned is reported as income; interest you paid on a personal loan is not deductible. You report the full amount of interest earned. Interest paid on a mortgage or student loan may be deductible, but that is a separate deduction on your return, not an offset against interest income.

Do I report interest from a savings account held in a trust?

It depends on the type of trust and who controls it. If you are the trustee and the trust is a separate tax entity, the trust may file its own return and report the interest. If the trust is a pass-through entity, the interest flows to the beneficiary's return. Consult a tax professional or the trust document to determine who reports the interest.

What if I closed my account mid-year — do I still report the interest?

Yes. You report all interest earned during the calendar year, regardless of when you closed the account. The bank will include the interest earned up to the closing date on your 1099-INT. Report the full amount on your tax return.