Interest from your savings account counts as income the IRS taxes

Yes, you owe federal income tax on the interest your savings account earns. The bank treats this interest the same way it treats wages or other income — it gets reported to the IRS, and you report it on your tax return. The amount you owe depends on how much interest you earned and your overall income for the year.

The good news: the interest most people earn on regular savings accounts is small enough that many don't owe any tax on it at all. The IRS has a threshold called the standard deduction, and if your total income stays below that number, you owe no federal income tax — including on savings interest. For 2024, that threshold is $14,600 for a single person under 65 and $29,200 for a married couple filing jointly.

The reason this matters now is that savings account interest rates have risen in recent years. If you have several thousand dollars in savings, or if you have other income besides the savings interest, you need to know whether you'll owe tax and how to report it.

Key Takeaways

  • Banks report all savings account interest to the IRS on a form called a 1099-INT if you earned $10 or more in interest during the year.
  • You owe federal income tax on this interest at your regular tax rate, but only if your total income exceeds the standard deduction for your filing status.
  • You report the interest on your tax return in the income section, and the IRS matches it against what the bank reported.
  • Some states also tax savings interest, while others do not — this depends on where you live and file taxes.
  • High-yield savings accounts earn more interest than traditional savings accounts, which means higher tax bills if you have a large balance.

How the IRS finds out about your savings interest

Your bank automatically reports interest to the IRS. If you earned $10 or more in interest during the calendar year, the bank sends you a form called a 1099-INT (Interest Income) by January 31 of the following year. The bank sends a copy to the IRS at the same time.

This is why you can't straightforward ignore savings interest on your tax return. The IRS already knows about it. If you don't report it and the amount is significant, the IRS will notice the mismatch between what you reported and what the bank reported. This can trigger a letter asking you to explain the difference, or in some cases, the IRS will assess tax and penalties on your behalf.

If you earned less than $10 in interest, the bank does not send a 1099-INT, and you are not required to report it. However, you still technically owe tax on it if your income is above the standard deduction — it's just that the IRS has no way to know you earned it.

When you actually owe tax on the interest

Whether you owe tax depends on your total income for the year, not just the interest. The IRS allows everyone a standard deduction — an amount of income you can earn without owing federal tax. If your total income (wages, self-employment income, interest, dividends, and other sources combined) is less than your standard deduction, you owe no federal income tax.

For 2024, the standard deduction amounts are:

  • Single filers under 65: $14,600
  • Married filing jointly, both under 65: $29,200
  • Single filers 65 and older: $18,350
  • Married filing jointly, one or both 65 and older: $30,750

These numbers change each year. If you are retired with no wages and your only income is $500 in savings interest, you owe no federal tax. If you work and earn $50,000 in wages plus $800 in savings interest, your total income is $50,800, and you owe tax on all of it at your regular rate — the interest is taxed the same as any other income.

The tax rate you pay on interest is your marginal tax rate — the percentage bracket you fall into based on your total income. Interest is treated as ordinary income, not as a special category, so it's taxed at the same rate as your wages.

How to report savings interest on your tax return

When you file your federal tax return, you report the interest in the income section. If you use tax software, it will ask you to enter the amount from your 1099-INT form. If you file by hand, you write the amount on the line for interest income on Form 1040 (the main federal tax form) or Schedule B if you have multiple sources of interest or dividends.

The process is straightforward: the 1099-INT shows the total interest earned. You copy that number onto your return. The IRS matches what you report against what the bank reported. If the numbers match, there's no issue. If you don't report it and the IRS notices, they will contact you.

If you have interest from multiple banks or accounts, you add them all together and report the total. Some people receive multiple 1099-INT forms (one from each bank) and need to add them up before entering the total on their return.

State income tax on savings interest

Most states that have an income tax also tax savings interest the same way the federal government does. You report it on your state return as well. However, some states do not tax interest income at all, and a few have special rules.

States with no income tax (and therefore no tax on savings interest) include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe no state tax on your savings interest, though you still owe federal tax if your income is above the standard deduction.

A few states tax interest differently than the federal government. For example, some states exempt interest from certain types of savings accounts or bonds. If you live outside the eight no-income-tax states, check your state's tax rules or ask a tax preparer whether your specific interest is taxed.

The difference between high-yield and regular savings accounts

A high-yield savings account earns significantly more interest than a traditional savings account at a brick-and-mortar bank. A regular savings account might earn 0.01% annually, while a high-yield account might earn 4% or 5%. This means the tax bill is much larger.

For example, if you have $10,000 in a regular savings account earning 0.01%, you earn $1 per year in interest — below the $10 threshold, so no 1099-INT and no reporting required. The same $10,000 in a high-yield account earning 4.5% earns $450 per year. You'll receive a 1099-INT, and if your income is above the standard deduction, you'll owe tax on that $450.

This is not a reason to avoid high-yield accounts — the interest you earn is still more than you'd earn elsewhere, even after taxes. But it's important to know that the higher interest comes with a higher tax bill. If you're saving for a specific goal and trying to estimate how much you'll have, remember to subtract the taxes you'll owe on the interest.

What to do if you didn't report interest in the past

If you realize you didn't report savings interest on a previous year's return, you can file an amended return. The IRS allows you to go back and correct mistakes. You would file Form 1040-X (Amended U.S. Individual Income Tax Return) for the year in question, add the interest income you missed, and recalculate your tax.

If the amount of interest was very small and your income was well below the standard deduction, the impact may be minimal or zero. If the amount was larger or your income was close to the threshold, you may owe additional tax plus interest on the unpaid amount (though not penalties if the error was unintentional and you correct it promptly).

If you're unsure whether you need to file an amended return, a tax preparer or the IRS can help you figure out whether you owed tax for those years. It's better to correct it than to leave it unresolved.

Frequently Asked Questions

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

The bank does not send a 1099-INT for interest under $10, so the IRS has no record of it. Technically you still owe tax on it if your income exceeds the standard deduction, but in practice, reporting amounts under $10 is rare and unlikely to trigger any notice. If your total income is below the standard deduction, you owe no tax on any interest amount.

What if I have interest from multiple banks?

You'll receive a separate 1099-INT from each bank. Add all the interest amounts together and report the total on your tax return. The IRS receives copies of all the 1099-INT forms, so they know the total as well.

Does interest from a money market account get taxed the same way?

Yes. Money market accounts, savings accounts, and certificates of deposit (CDs) all earn interest that is taxed as ordinary income. The bank reports it on a 1099-INT the same way, and you report it the same way on your return.

Can I deduct any expenses related to my savings account?

No. Interest income is reported as-is, with no deductions. You cannot deduct account fees, the cost of a safe deposit box, or any other expense against savings interest. Those expenses may be deductible in other contexts, but not against interest income.

What if my savings interest pushes me over the standard deduction?

Then you owe federal income tax on your entire income, including the interest. For example, if you're single and earn $14,200 in wages plus $500 in interest, your total is $14,700 — above the $14,600 standard deduction. You would owe tax on the full $14,700 at your tax rate, not just the $100 over the threshold.