Savings account interest counts as income the IRS taxes
Yes, you owe federal income tax on the interest your savings account earns. The IRS treats interest the same way it treats wages — as taxable income. That means the money your bank pays you for letting them use your deposits gets added to your other income when you file your tax return, and you pay tax on the total at your regular income tax rate.
The amount of tax you owe depends on two things: how much interest you earned and what your overall income was that year. Someone earning $30,000 a year will pay less tax on $100 of interest than someone earning $100,000, because tax brackets are progressive — the more you earn, the higher your rate.
Most savings accounts earn very little interest, so the tax bill is often small. But if you have a large balance or a high-yield savings account, the interest can add up quickly, and so can the tax.
Key Takeaways
- The IRS taxes savings account interest as ordinary income at your regular tax rate, not at a special lower rate.
- Your bank will send you a Form 1099-INT if you earned $10 or more in interest during the year, and you must report that amount on your tax return.
- You report interest income on your Form 1040 or 1040-SR, and it increases your total taxable income for the year.
- Some people owe no federal income tax at all because their income is below the threshold for their age and filing status, even if they earned interest.
When your bank sends you a 1099-INT form
If you earned $10 or more in interest during a calendar year, your bank must send you a Form 1099-INT by January 31 of the following year. This form shows how much interest you earned in each account at that bank. You get one copy to keep, and the bank sends a copy to the IRS.
You need this form to file your taxes correctly. The IRS already has a copy, so if you report a different amount than what the form shows, the IRS will notice. Even if your bank does not send you a 1099-INT because you earned less than $10, you still owe tax on any interest you earned — you just have to track it yourself.
If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. Add up all the interest from all your forms when you report it on your tax return.
How to report interest income on your tax return
You report interest income on Form 1040 (or Form 1040-SR if you are 65 or older). There is a line specifically for interest income, usually on the first page. You write the total amount of interest you earned from all sources, and that amount gets added to your other income.
If you earned interest from multiple accounts or banks, you add them all together and report the total on that one line. You do not need to list each account separately unless you are itemizing deductions or have other complications — most people just write the total.
The interest becomes part of your adjusted gross income (AGI), which is the number the IRS uses to calculate how much tax you owe. A higher AGI can also affect whether you may have access to for certain tax deductions or credits, so it matters beyond just the tax on the interest itself.
The difference between federal and state income tax
Federal income tax is what the IRS collects. Most states also have their own income tax, and they tax savings account interest the same way the federal government does — as ordinary income at your state tax rate.
A few states do not have income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe federal tax on your interest but no state income tax. If you live elsewhere, you will owe both federal and state tax on the interest you earn.
Some states offer small breaks for interest income from certain accounts, but these are rare and usually explore only to specific types of savings vehicles, not regular savings accounts. Check your state's tax authority website if you want to know whether your state has any special rules.
When you might owe no tax despite earning interest
If your total income for the year falls below a certain threshold, you may not owe federal income tax at all — even if you earned interest. The threshold depends on your age and whether you file as single, married, or head of household. For 2024, a single person under 65 with only interest income owes no federal tax if their income was below $14,600. The threshold is higher if you are 65 or older, and different if you are married.
These thresholds change every year, so you should check the current year's numbers when you file. The IRS publishes them on its website each January. If your total income is below the threshold for your situation, you do not owe federal income tax, even if you earned some interest.
You may still want to file a tax return anyway if you had taxes withheld from paychecks or other income, because you could get a refund. But if you earned only interest and it was below the threshold, filing is optional.
How interest rates affect your tax bill
Higher interest rates mean you earn more interest, which means you owe more tax. When the Federal Reserve raises interest rates, banks raise the rates they pay on savings accounts. A high-yield savings account might pay 4% or 5% per year, while a regular savings account might pay 0.01%. The difference in interest earned — and the tax on it — can be substantial.
If you have $10,000 in a regular savings account earning 0.01%, you earn $1 per year and owe almost no tax. If you move that same $10,000 to a high-yield account earning 4.5%, you earn $450 per year. At a 22% federal tax rate, that is roughly $99 in federal tax, plus whatever state tax applies. The higher rate is better for your savings, but you need to account for the tax when you plan your finances.
Interest rates are always changing, so the amount you earn and the tax you owe will vary from year to year. When rates are high, your interest income goes up. When rates fall, it goes down.
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 1099-INT form. You still owe tax on any interest you earned, even if it was $1. You have to track it yourself and report it on your return.
What if I earned interest in multiple accounts at the same bank?
Your bank will show all the interest from all your accounts on a single 1099-INT form. When you file your taxes, you report the total from that form on one line. You do not report each account separately.
Can I deduct the taxes I pay on interest from my interest income?
No. You report the full amount of interest you earned as income, and then you pay tax on it. You cannot reduce the interest amount by the tax you owe. However, if you paid estimated taxes or had taxes withheld, those payments reduce what you owe overall.
Does moving money between my own savings accounts count as income?
No. Moving money from one account to another is not income — it is just moving your own money around. Only the interest the bank pays you counts as income.
What happens if my bank does not send me a 1099-INT but I earned interest?
You still owe tax on the interest. Report it on your tax return based on your own records — your bank statements or the interest shown in your online banking. The IRS may not catch the discrepancy if the amount is small, but you are legally required to report it.