Yes, you must report all savings account interest on your federal tax return, no matter how small the amount

The IRS requires you to report every dollar of interest your savings account earns. There is no minimum threshold — even $1 in interest must be reported. Your bank will send you a Form 1099-INT in January if your account earned $10 or more during the previous year, but you are required to report the interest whether or not you receive the form.

The interest counts as ordinary income and is taxed at your regular income tax rate. This applies to savings accounts, money market accounts, certificates of deposit (CDs), and any other account where a bank pays you interest. The bank reports what it paid you to the IRS at the same time it sends the form to you, so the IRS already knows the amount.

Key Takeaways

  • You must report all savings account interest on your federal return, even amounts under $10 and even if you do not receive a Form 1099-INT.
  • Your bank sends Form 1099-INT to you and the IRS when interest reaches $10 or more, but the reporting requirement exists regardless of whether you get the form.
  • Interest is taxed as ordinary income at your regular tax rate, not at a special capital gains rate.
  • If you have multiple savings accounts, you add up all the interest from all accounts and report the total.
  • Some states also tax savings account interest, though a few states exempt it entirely.

How Form 1099-INT works and what it shows

Your bank generates Form 1099-INT and mails it to you by January 31 each year. The form shows the total interest paid to your account during the previous calendar year. Box 1 on the form contains the interest amount you need to report. The form also includes your account number and the bank's tax identification number so the IRS can match it to your return.

If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. You add up the interest from all forms and report the total on your tax return. If you earned less than $10 in interest at a particular bank, that bank may not send you a form for that account, but you still need to report the interest if you know what it is.

What happens if you do not report the interest

The IRS receives a copy of every Form 1099-INT your bank sends. When you file your return, the IRS compares the interest reported on your return to the interest reported on the 1099-INT forms. If the amounts do not match, the IRS will notice the discrepancy.

If you fail to report interest, the IRS may send you a notice asking you to explain the difference. You may owe additional tax, plus interest on the unpaid amount. Penalties for underreporting income can range from 20 percent of the underpaid tax to higher amounts if the IRS determines the error was intentional. The safest approach is to report all interest, even small amounts.

Interest from different types of savings accounts

All interest-bearing accounts generate reportable interest. This includes traditional savings accounts, high-yield savings accounts, money market accounts, and CDs. Interest from an Individual Retirement Account (IRA) or 401(k) is handled differently and does not appear on a 1099-INT — those accounts have their own reporting rules. But any interest earned in a regular bank account, whether at a traditional bank or an online bank, must be reported.

Some accounts earn interest that is credited monthly or quarterly but not withdrawn. You still report it in the year it is earned, not in the year you withdraw it. For example, if a CD earns $50 in interest during 2024 but you do not cash it out until 2025, you report the $50 on your 2024 return.

State income tax reporting for savings interest

Most states that have an income tax also tax savings account interest. You will report the same interest amount on your state return that you reported on your federal return. A few states — including Illinois, Mississippi, and Tennessee — do not tax interest income at all, so residents of those states do not report savings interest to the state.

If you live in a state with income tax, check your state's tax form instructions to see where to report interest. Many states use a similar approach to the federal system and ask you to report the total interest on a specific line of the state return. Some states have their own version of the 1099-INT reporting requirement.

What to do if you lose your 1099-INT or the amount seems wrong

If you do not receive a Form 1099-INT by early February, contact your bank and ask them to send a duplicate or provide the interest amount in writing. You can also log into your online banking account and look at your year-end statement, which usually shows the total interest earned. Keep that documentation in case the IRS asks about the amount later.

If the 1099-INT shows an amount that does not match your records, contact your bank when ready. Banks make mistakes — interest may be calculated incorrectly, or a deposit may be credited to the wrong account. Ask the bank to issue a corrected form if the error is on their end. If you believe the form is wrong but the bank says it is correct, report the amount shown on the form and keep your own records showing why you think it is incorrect.

How interest income affects your tax bracket and other benefits

Interest income counts toward your total income for the year, which can affect your tax bracket and your may be able to access for certain tax credits or deductions. For example, if your interest income pushes you into a higher tax bracket, some of your other income will be taxed at a higher rate. Interest can also affect whether you may have access to for education credits, the Earned Income Tax Credit, or other benefits that have income limits.

This is one reason to pay attention to how much interest you are earning. A high-yield savings account might earn significantly more interest than a traditional savings account, which could change your tax situation. If you expect to earn a large amount of interest, you may want to estimate your total income early in the year so you can adjust your withholding or make estimated tax payments if needed.

Frequently Asked Questions

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

Yes. The $10 threshold only determines whether your bank sends you a Form 1099-INT. You are required to report all interest you earned, regardless of the amount. If you know you earned interest but did not receive a form, you still need to report it on your return.

What if I have interest from a joint account?

The bank will issue a 1099-INT to the person whose Social Security number is listed first on the account. That person is responsible for reporting the interest, unless you have a written agreement with the other account holder stating that you will split the interest differently. If you split it differently, you may need to file an amended return or provide documentation to the IRS if questioned.

Can I deduct any expenses related to my savings account?

Generally, no. Interest earned on a personal savings account is income, and you cannot deduct the cost of maintaining the account or any fees you paid. If you have a business savings account, some expenses may be deductible, but that falls under business accounting rules, not personal tax rules.

What if my bank paid interest but did not send a 1099-INT?

Contact the bank and ask for a corrected form or a written statement of the interest paid. You can also use your account statements to calculate the total interest. Report the amount you earned, and keep your documentation. If the IRS asks, you can show proof that you reported the correct amount even though the bank did not send the form.

Does interest from a savings account count as earned income?

No. Interest is considered unearned income, which means it does not count toward the Earned Income Tax Credit or other credits that require earned income. It does count as income for determining your overall tax bracket and for means-tested benefits like Medicaid or subsidized health insurance.