The tax rate on your savings interest depends on your total income and filing status
Interest from a savings account is taxed as ordinary income, which means it uses the same tax brackets as your wages or salary. You do not pay a flat rate on interest — instead, the interest gets added to your other income, and the combined total determines your tax bracket. If you earn $50,000 in wages and $500 in savings interest, the IRS treats it as $50,500 in taxable income.
The actual percentage you owe depends on which tax bracket you fall into. For 2024, federal tax brackets range from 10% to 37%, but most people with savings interest fall into the 12%, 22%, or 24% brackets. Your state may also tax interest income — some states do not, but others add between 3% and 13% on top of the federal rate.
You only owe tax on interest that exceeds $10 (for most filers). Banks report interest of $10 or more on a Form 1099-INT, which you receive by January 31 each year. Interest below that threshold still counts as taxable income, but you report it yourself on your tax return.
Key Takeaways
- Savings interest is taxed at your ordinary income tax rate, not a separate rate, so the percentage depends on your total income and filing status.
- Federal rates for 2024 range from 10% to 37%, but most savers fall into the 12% to 24% brackets.
- Your state may add 0% to 13% in state income tax on top of the federal amount.
- Banks send a Form 1099-INT for interest of $10 or more, which you report on your tax return.
- Interest below $10 is still taxable but does not require a 1099-INT form.
How your tax bracket affects the rate you pay
The U.S. uses a progressive tax system, meaning different portions of your income are taxed at different rates. The first portion of your income is taxed at 10%, the next portion at 12%, and so on. Your savings interest gets added to the top of your other income, so it is taxed at whatever bracket you have reached.
If you are single and earn $40,000 in wages, you are in the 12% bracket. If you then earn $2,000 in savings interest, that $2,000 is taxed at 12% (not at a lower rate). If you earn $90,000 in wages and $2,000 in interest, the interest is taxed at 22%. The more income you have, the higher the rate on your interest.
Your filing status also matters. Single filers, married filing jointly, and head of household all have different bracket thresholds. A married couple filing jointly can earn more before reaching a higher bracket than a single filer can.
State income tax on savings interest
Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, but many accounts are exempt). In these states, you owe only federal tax on your savings interest.
In the remaining 41 states, interest income is subject to state income tax. Rates vary widely. New York taxes interest at up to 10.9%, California at up to 13.3%, and Vermont at up to 8.75%. Some states like Illinois and Mississippi tax interest at lower rates or offer exemptions for certain types of accounts or income levels.
If you live in a state with income tax and earn interest, you will owe both federal and state tax. A person in California earning $50,000 in wages and $1,000 in interest might owe roughly 24% federal (depending on exact brackets) plus 9.3% state, for a combined rate around 33% on that interest.
When you receive a Form 1099-INT and what it means
Your bank sends a Form 1099-INT if you earned $10 or more in interest during the year. You receive it by January 31. The form shows the total interest paid to you in box 1. If you have multiple savings accounts, you may receive multiple 1099-INT forms — one from each bank.
The 1099-INT is informational. It tells you and the IRS how much interest you earned. You must report this amount on your tax return, even if you do not receive a 1099-INT (for instance, if interest was below $10). The IRS receives a copy of every 1099-INT sent to you, so if you do not report the interest and the IRS sees the form, you may face a notice or audit.
Some accounts, like money market accounts and certificates of deposit (CDs), also generate 1099-INT forms. Interest from all of these sources gets added together on your tax return.
Interest below $10 and reporting requirements
If you earn less than $10 in interest during a year, your bank does not send a 1099-INT. However, you still owe tax on that interest. You report it yourself on your tax return, typically on Schedule 1 (Form 1040) or on the interest line of your return, depending on the tax software or form you use.
This matters most for people with very small savings balances or accounts opened late in the year. A person with $500 in a savings account earning 4% annually would earn $20 in interest and receive a 1099-INT. But someone with $200 in the account would earn $8 and not receive a form — yet still owes tax on that $8.
High-yield savings accounts and money market accounts
High-yield savings accounts and money market accounts often pay significantly more interest than traditional savings accounts — sometimes 4% to 5% annually compared to 0.01% at a traditional bank. This higher interest means higher tax liability. A person with $50,000 in a high-yield account earning 4.5% would owe tax on $2,250 in interest, compared to roughly $5 in a traditional account.
The tax treatment is identical: the interest is ordinary income and taxed at your marginal rate. The difference is purely in the amount of interest earned and therefore the amount of tax owed. High-yield accounts are still advantageous because you earn more interest overall, even after taxes, than you would in a traditional account.
Some people use high-yield savings accounts as a short-term holding place for money before investing it or spending it. The interest earned is still taxable, even if you only hold the money for a few months.
Certificates of deposit (CDs) and tax timing
Interest from a CD is taxed in the year it is earned, not when the CD matures. If you buy a 12-month CD in November 2024 that matures in November 2025, you report the interest on your 2024 tax return (the year you earned it), even though you do not receive the money until 2025. Your bank will send a 1099-INT for 2024 showing the interest accrued.
This timing rule matters if you are planning your taxes or trying to stay in a lower bracket. Buying a CD late in the year can push you into a higher bracket if the interest is substantial. Some people stagger CD purchases across years to spread the interest income and avoid a sudden jump in taxable income.
Frequently Asked Questions
Do I owe federal tax and state tax on the same interest?
Yes, in most cases. If your state has an income tax, you owe both federal and state tax on savings interest. The rates are separate — federal brackets and state brackets do not overlap. A person in New York owing 24% federal tax and 6.85% state tax owes roughly 31% combined on interest income.
What if I have interest from multiple banks?
You add all interest together on your tax return. If you have three savings accounts at different banks and each earns $500 in interest, you report $1,500 total as interest income. You will receive a separate 1099-INT from each bank, but you combine them when you file.
Can I deduct anything to offset the tax on interest?
No. Interest income cannot be reduced by deductions. However, if you have investment losses or other deductions, those reduce your overall taxable income, which lowers the bracket your interest falls into. This is an indirect effect, not a direct offset.
Is interest from a CD taxed differently than interest from a savings account?
No. Both are taxed as ordinary income at your marginal rate. The only difference is the timing: CD interest is taxed in the year it accrues, even if you do not receive it until the CD matures.
What if I earned interest but did not receive a 1099-INT?
You still owe tax on it. Report the interest on your tax return yourself. This usually happens when interest is below $10 or when a bank makes an error. If you received a 1099-INT but think the amount is wrong, contact the bank to request a corrected form.