The basic calculation: multiply your interest rate by your account balance

The tax you owe on savings interest depends on how much interest your bank paid you during the year, not on your account balance. Your bank reports this amount to you and the IRS on a Form 1099-INT by January 31 each year. You then add that interest income to your other income on your tax return and pay tax on it at your ordinary income tax rate — the same rate you pay on wages or salary.

The actual interest amount is what matters for taxes. If you earned $47 in interest during 2024, that $47 gets added to your taxable income. If your tax bracket is 22%, you owe roughly $10 in federal tax on that interest (before any deductions or credits). The calculation is straightforward: interest earned × your tax rate = tax owed.

You do not calculate the tax yourself on your return. Instead, you report the interest income from your 1099-INT, and the tax software or tax preparer handles the rest. But understanding how much interest you earned and what your tax bracket is helps you know what to expect.

Key Takeaways

  • Your bank sends you a Form 1099-INT by January 31 showing all interest paid to your account during the year, and this is the number you report to the IRS.
  • Interest income is taxed at your ordinary income tax rate, which depends on your total income and filing status, not on a special interest rate.
  • High-yield savings accounts and money market accounts earn more interest, which means more tax owed, but the calculation method is identical.
  • If you earned less than $10 in interest, your bank may not send a 1099-INT, but you still report the interest on your return if you received it.
  • Joint accounts and accounts held by minors have different reporting rules that affect which 1099-INT form is issued and who reports the income.

Where to find your interest income on the 1099-INT

Your bank mails or emails the 1099-INT to you by January 31. The form has several boxes, but Box 1 is the one that matters for most people — it shows the total interest your account earned during the year. This is the number you enter on your tax return.

If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each bank. You add all the Box 1 amounts together to get your total interest income for the year. If one bank paid you $23 in interest and another paid $18, your total taxable interest is $41.

Keep your 1099-INT forms with your tax records. You do not mail them to the IRS, but the IRS receives a copy directly from your bank, so the numbers must match what you report on your return. If you lose the form, you can contact your bank and request a duplicate.

How your tax bracket determines what you actually owe

Interest income is added to your other income — wages, self-employment income, investment gains — and taxed at your marginal tax rate. Your marginal rate is the percentage you pay on your last dollar of income. For 2024, federal tax brackets range from 10% to 37% depending on your total income and filing status.

If you are single and earned $50,000 in wages plus $500 in interest, your total taxable income is $50,500. That extra $500 in interest is taxed at whatever bracket your $50,500 puts you in. If you fall in the 22% bracket, you owe roughly $110 in federal tax on the interest ($500 × 0.22). If you fall in the 24% bracket, you owe roughly $120.

State and local taxes also apply in most states. Some states tax interest income at the same rate as federal tax; others have a separate rate. A few states do not tax interest income at all. Check your state's tax website or ask a tax preparer what rate applies where you live.

Interest from high-yield savings accounts and money market accounts

High-yield savings accounts and money market accounts earn significantly more interest than traditional savings accounts — sometimes 4% to 5% annually compared to 0.01% or less at big banks. This means more interest to report and more tax owed, but the reporting and calculation method is identical. Your bank still sends a 1099-INT, and you still add the interest to your taxable income.

If a high-yield account earned you $800 in interest during the year, that full $800 is taxable income. At a 22% tax rate, you owe roughly $176 in federal tax. The higher earnings are worth it for many people, but it is important to factor the tax impact into your decision about where to keep your savings.

Some people move money to high-yield accounts specifically to earn more interest, then use that interest to cover taxes or reinvest it. Others prefer lower-earning accounts to minimize tax liability. Both approaches are valid — the key is knowing what you will owe before you move your money.

Special cases: joint accounts, minor children, and accounts you do not own

If you own a joint savings account with another person, the bank typically issues the 1099-INT to whoever is listed first on the account. That person is responsible for reporting the interest to the IRS, even if the other owner contributed more money or earned the interest. You and your co-owner should decide between yourselves who will report it and how to split the tax burden — the IRS does not care, as long as the total reported matches the 1099-INT.

If a parent opens a savings account in a child's name, the interest is the child's income and must be reported on the child's tax return, not the parent's. If the child has no other income and the interest is under a certain threshold (roughly $1,300 for 2024, though this changes yearly), the child may not need to file a return. But if the interest pushes the child's total income above that threshold, a return is required. Parents should check IRS rules for dependent children each year.

If you inherit a savings account or receive interest from an account you do not own, the original account holder's estate or the account owner is responsible for reporting it. You will not receive a 1099-INT for interest you did not earn. If you are unsure who should report interest from an account, contact the bank or a tax preparer.

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

Banks are required to send a 1099-INT if you earned $10 or more in interest during the year. If you earned less than $10, your bank may not send one, but you still report the interest on your return if you received it. Check your year-end account statement to see how much interest was credited.

If you earned $10 or more and did not receive a 1099-INT by early February, contact your bank. The form may have been mailed to an old address, or the bank may have made an error. Request a duplicate copy. If the bank cannot locate it, ask for a written statement showing the interest paid — you can use that to report the income on your return.

If you report interest income on your return but the IRS later receives a 1099-INT from your bank with a different amount, the IRS will send you a notice. This usually happens when a bank corrects an error or issues an amended 1099-INT. If you receive such a notice, compare the amounts, correct your return if needed, and respond to the IRS within the deadline on the notice.

Frequently Asked Questions

Do I have to report interest income if it is less than $10?

If you earned less than $10, your bank will not send a 1099-INT. However, you still report the interest on your return if you received it. The IRS expects all income to be reported, regardless of amount. Check your account statement to confirm how much you earned.

What if my interest income pushes me into a higher tax bracket?

Interest income is added to your other income and taxed at your marginal rate. If the total pushes you into a higher bracket, only the income in that new bracket is taxed at the higher rate — your existing income is not retroactively taxed higher. This is how progressive tax brackets work.

Can I deduct the taxes I pay on interest income?

No. Interest income is added to your taxable income, and you pay tax on it at your ordinary rate. You cannot deduct the tax owed. However, if you paid state or local taxes on the interest, you may be able to deduct those under the state and local tax (SALT) deduction, subject to a $10,000 annual limit.

Do I report interest from a CD or money market account differently?

No. CDs, money market accounts, and regular savings accounts all report interest on a 1099-INT, and you report it the same way on your return. The interest is taxed at your ordinary income rate regardless of the account type.

What happens if the bank reports interest I did not actually receive?

Contact your bank immediately. Interest should only be reported if it was actually credited to your account. If the bank made an error, ask them to issue a corrected 1099-INT. Keep documentation of your account statements showing what was actually paid. If the IRS contacts you about a discrepancy, you can provide this documentation to resolve it.