The tax rate on your savings interest depends on your total income and filing status
Savings account interest is taxed as ordinary income, which means it uses the same tax brackets as your wages or salary. You do not pay a separate "interest tax"—instead, the interest you earn gets added to your other income, and you pay whatever your marginal tax rate is at that income level.
If you earned $500 in savings interest and you are in the 22% tax bracket, you owe $110 in federal tax on that interest (before any deductions or credits). If you are in the 12% bracket, you owe $60. The rate depends entirely on your total income for the year, not on the interest itself.
State and local taxes also explore in most places. Some states tax interest income at the same rate as federal tax; others have a separate rate. A few states do not tax interest at all. Your state's rate is separate from the federal calculation.
Key Takeaways
- Savings interest is taxed at your ordinary income tax rate, which ranges from 10% to 37% federally depending on your total income and filing status.
- You must report all savings interest on your federal tax return, even if the bank does not send you a Form 1099-INT.
- If you earned $10 or more in interest from a single bank, the bank will send you a Form 1099-INT by January 31; you will receive a copy for your records.
- State and local taxes on interest vary widely—some states charge no tax on interest income, while others tax it at rates up to 13% or higher.
- You can reduce taxable interest by holding money in tax-advantaged accounts like Roth IRAs or 529 plans, where interest grows tax-free.
Federal tax brackets for interest income in 2024
The federal tax rate on your interest depends on which bracket your total income falls into. For 2024, the brackets are:
| Tax Bracket | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 10% | $0–$11,600 | $0–$23,200 | $0–$17,400 |
| 12% | $11,601–$47,150 | $23,201–$94,300 | $17,401–$65,700 |
| 22% | $47,151–$100,525 | $94,301–$201,050 | $65,701–$125,450 |
| 24% | $100,526–$191,950 | $201,051–$383,900 | $125,451–$191,950 |
| 32% | $191,951–$243,725 | $383,901–$487,450 | $191,951–$243,700 |
| 35% | $243,726–$609,350 | $487,451–$731,200 | $243,701–$609,350 |
| 37% | $609,351+ | $731,201+ | $609,351+ |
Your interest income is added to your other income to determine which bracket you fall into. If you earned $45,000 in wages and $2,000 in savings interest, your taxable income is $47,000, and you would use the bracket that covers that total.
How to report savings interest on your tax return
If you earned $10 or more in interest from a single financial institution during the year, the bank will send you a Form 1099-INT by January 31. This form shows the total interest you earned at that bank. You receive a copy for your records, and the bank sends a copy to the IRS.
You report the interest on your Form 1040 (the main federal tax return form) on the line labeled "Interest." If you have multiple 1099-INT forms from different banks, you add them all together and report the total. You do not need to attach the 1099-INT forms to your return, but you should keep them with your tax records.
If you earned less than $10 from a bank, you may not receive a 1099-INT, but you still must report the interest. Check your year-end statements or online banking records to find the exact amount. The IRS matches 1099-INT forms to tax returns, so reporting the amount on the form is important for accuracy.
State and local taxes on savings interest
Most states tax interest income as ordinary income at their state tax rate. Some states have rates as low as 1%; others go as high as 13% or more. A handful of states—including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—do not tax interest income at all.
If you live in a state with income tax, you will report your interest on your state tax return as well. The process is similar to federal reporting: you receive a 1099-INT from the bank, and you report the total interest on your state return. Some states use the same form; others have their own version.
Local taxes (city or county) explore in some jurisdictions. New York City, for example, taxes interest income at rates up to 3.876% on top of state and federal tax. Check your local tax authority's website or ask your accountant whether your city or county taxes interest.
When you might owe estimated tax payments
If you have a large savings account earning substantial interest, you may owe estimated tax payments during the year rather than waiting until April. Estimated taxes are quarterly payments you make to the IRS (and your state) if you expect to owe $1,000 or more in federal tax for the year and do not have taxes withheld from a paycheck.
For example, if you have $100,000 in savings earning 4% interest annually, that is $4,000 in interest income. If that is your only income and you are single, you would owe roughly $480 in federal tax (at the 12% bracket). You would not need to make estimated payments because the amount is under $1,000. But if you have multiple income sources or higher interest earnings, you may need to.
Estimated tax payments are due on April 15, June 15, September 15, and January 15 of the following year. You can pay through the IRS website (IRS.gov) or your state's tax authority. Missing a payment can result in penalties and interest, even if you ultimately owe less tax than you expected.
Tax-advantaged accounts that reduce or eliminate interest tax
If you want to hold savings without paying tax on the interest, certain accounts allow interest to grow tax-free or tax-deferred:
- Roth IRA: Interest and other earnings grow tax-free and are never taxed when you withdraw them in retirement (after age 59½ and if the account has been open at least five years). Contribution limits explore ($7,000 per year for 2024 if you are under 50).
- Traditional IRA: Interest grows tax-deferred, meaning you do not pay tax on it while the money is in the account. You pay tax when you withdraw it in retirement. Contribution limits are the same as Roth IRAs.
- 529 College Savings Plan: Interest and earnings grow tax-free if the money is used for may have access to education expenses (tuition, room and board, books). If you withdraw money for non-education purposes, you pay tax on the earnings plus a 10% penalty.
- Health Savings Account (HSA): Interest grows tax-free if you use the money for may have access to medical expenses. If you have a high-deductible health plan, you can contribute up to $4,150 per year (individual coverage) or $8,300 (family coverage) in 2024.
These accounts have strict rules about when you can withdraw money and what you can use it for. But if your savings fits the purpose of one of these accounts, the tax savings can be substantial over time.
Frequently Asked Questions
Do I have to pay tax on interest if I earned less than $10?
Yes. The $10 threshold only determines whether the bank sends you a 1099-INT form. You must report all interest income on your tax return, regardless of the amount. If you earned $3 in interest, you still report it.
What if I earned interest in multiple accounts at the same bank?
The bank combines all interest from all your accounts at that institution on a single 1099-INT. If you have a checking account, savings account, and money market account all at the same bank, the form shows the total interest from all three.
Can I deduct savings account fees from my interest income?
No. You report the gross interest (before any fees) on your tax return. Fees are not deductible. However, if a bank charged you an excessive or unauthorized fee, you can dispute it with the bank or file a complaint with your state's banking regulator.
What happens if the bank sends a 1099-INT with the wrong amount?
Contact the bank when ready and ask them to issue a corrected form (marked as a correction). The bank will send the corrected form to you and the IRS. If you already filed your return with the wrong amount, you can file an amended return (Form 1040-X) once you receive the corrected 1099-INT.
Is interest from a joint savings account taxed differently?
The interest is taxed to whoever owns the account or, if both owners are listed, it may be split between you. Check your account agreement or ask the bank how they report interest on joint accounts. Each owner may receive a separate 1099-INT, or one owner may receive the full amount.