The tax on savings account interest depends on your total income and filing status

The interest your savings account earns is taxed as ordinary income at your federal tax rate. That rate ranges from 10% to 37% depending on how much you earn overall and whether you file as single, married filing jointly, or another status. Your bank will report the interest to the IRS on a Form 1099-INT, and you report it on your tax return. The amount of tax you actually owe is determined when you file, not when the interest hits your account.

State and local income taxes may also explore to savings interest, depending on where you live. Some states tax interest income; others do not. If you live in a state with income tax, you will owe tax on the interest at your state rate as well as your federal rate.

The key point: the interest itself is not taxed at a flat rate. Your tax bill depends on your total income for the year, your filing status, and your state of residence.

Key Takeaways

  • Savings account interest is taxed as ordinary income at your federal tax bracket, which ranges from 10% to 37% depending on your total income and filing status.
  • Your bank reports interest of $10 or more on a Form 1099-INT, which you receive by January 31 and must report on your tax return.
  • State and local income taxes explore to savings interest in most states, adding to your federal tax bill.
  • Interest earned in a traditional IRA or 401(k) is not taxed until you withdraw the money, but interest in a regular savings account is taxed in the year it is earned.

How your tax bracket determines what you owe

Your federal tax rate on savings interest is not a fixed percentage—it is your marginal tax bracket, which is the rate you pay on your last dollar of income. If you earn $50,000 a year and file as single, you are in the 22% bracket. If you earn $100,000, you are in the 24% bracket. The interest you earn is added to your other income, and you pay tax on it at whatever bracket that total income puts you in.

For example: if you earn $45,000 in wages and your savings account earns $500 in interest, your taxable income is $45,500. You pay tax on that $500 at the rate for $45,500 in income, not at a separate "interest rate." If $45,500 falls in the 22% bracket, you owe roughly $110 in federal tax on that interest.

The brackets change every year and depend on inflation. They also depend on your filing status. A single filer and a married couple filing jointly have different bracket thresholds, so the same amount of interest may be taxed at different rates depending on how you file.

When your bank reports interest to the IRS

Banks report savings account interest on Form 1099-INT, which they mail to you by January 31 each year. The form shows the total interest earned in the previous calendar year. You receive a copy and the IRS receives a copy. You must report this interest on your tax return, even if the bank does not send you a 1099-INT (which happens when interest is less than $10 at some banks, though many banks report all interest regardless of amount).

The 1099-INT shows interest earned only—it does not calculate your tax or tell you what you owe. That calculation happens when you file your return and report the interest as income.

If you have multiple savings accounts at different banks, you will receive a separate 1099-INT from each one. You add all the interest together when you file.

The difference between regular savings and tax-advantaged accounts

Interest earned in a regular savings account, money market account, or certificate of deposit (CD) is taxed in the year you earn it. You cannot defer the tax to a later year.

Interest earned inside a traditional IRA or 401(k) is not taxed when it is earned. You pay tax on it only when you withdraw the money in retirement. This is one reason these accounts are called tax-advantaged: the interest compounds without being reduced by taxes each year.

Interest earned in a Roth IRA is not taxed at all, either when earned or when withdrawn—but you can only contribute a limited amount each year, and there are income limits for who can open one.

A high-yield savings account (HYSA) earns more interest than a regular savings account, but the interest is still taxed as ordinary income in the year you earn it. The higher rate does not change the tax treatment.

State and local income tax on savings interest

Most states that have an income tax also tax interest income. The state tax rate varies by state and, like federal tax, usually depends on your total income. Some states have a flat tax rate on all income; others have brackets like the federal system.

A few states do not tax interest income at all. These include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you owe federal tax on savings interest but no state income tax on it.

If you live in a state with local income tax (such as Ohio, Pennsylvania, or parts of New York), you may owe local tax on savings interest as well as state tax. The local rate is usually lower than the state rate.

How to report savings interest on your tax return

You report savings account interest on Schedule B (Interest and Ordinary Dividends) if your interest income is more than $1,500, or directly on Form 1040 if it is $1,500 or less. The interest goes into your total income, and you pay tax on it at your marginal rate.

If you use tax software, it will usually walk you through entering the 1099-INT information. If you file by hand or with a tax professional, bring your 1099-INT forms with you.

You do not need to do anything special when the interest is deposited into your account. The tax is calculated and paid when you file your return, usually by April 15 of the following year.

What happens if you earn very little interest

Even if you earn only a small amount of interest—say, $5 or $15—you still owe tax on it if your total income is high enough to be taxable. The interest is added to your other income, and you pay tax at your bracket rate.

However, if your total income is very low, you may not owe any federal income tax at all. The standard deduction is an amount of income you can earn without owing tax. For 2024, the standard deduction is $14,600 for a single filer and $29,200 for married filing jointly. If your total income (wages plus interest) is below the standard deduction for your filing status, you owe no federal income tax, even if you earned interest.

You still have to file a return and report the interest if your income is above the filing threshold, even if you do not owe tax.

Frequently Asked Questions

Do I owe tax on interest if I did not withdraw the money?

Yes. You owe tax on interest in the year it is earned, whether you withdraw it or leave it in the account. The IRS taxes interest income when it is credited to your account, not when you move the money.

What if my savings account earned less than $10 in interest?

Your bank may not send you a 1099-INT if interest is under $10, but you still owe tax on it. You must report all interest income on your return, even if you do not receive a 1099-INT. Check your account statements to find the total.

Can I deduct savings account fees from the interest I report?

No. You report the full interest amount on your return. Account fees are not deductible against interest income for most taxpayers. You pay tax on the interest and absorb the fees separately.

Is interest from a CD taxed differently than interest from a savings account?

No. Both are taxed as ordinary income at your marginal rate in the year the interest is earned. A CD may earn more interest, but the tax treatment is the same.

What if I moved money between banks during the year?

Each bank reports only the interest earned on money held at that bank. If you moved $10,000 from Bank A to Bank B in June, Bank A reports interest earned January through May, and Bank B reports interest earned June through December. You add both 1099-INTs together on your return.