You pay taxes on savings account interest through your regular income tax return
The interest your savings account earns is taxable income. You do not pay it separately — instead, you report it on your annual tax return along with your wages, and pay tax on the total. The bank sends you a form in January showing how much interest you earned that year, and you use that number when you file.
The amount of tax you owe depends on your overall income and your tax bracket. Someone earning $30,000 a year pays a lower percentage on savings interest than someone earning $150,000. If your savings account earned only a few dollars in interest, you might owe very little or nothing. If it earned hundreds or thousands, the tax bill will be larger.
You do not need to pay the tax upfront. Instead, you settle it when you file your tax return, usually between January and April 15th. If you expect to owe a significant amount, you can make estimated tax payments throughout the year, but most people with savings accounts handle it all at tax time.
Key Takeaways
- Your bank will send you a Form 1099-INT in January showing all interest earned in the previous year, and you must report this amount on your tax return.
- The tax you owe on savings interest is calculated as part of your total income, using your regular tax bracket, not a separate rate.
- You report the interest on Form 1040 or your state return, depending on whether the account is in your name alone or held jointly.
- If you earned less than $10 in interest during the year, the bank may not send a form, but you still report the interest if you received it.
- High-yield savings accounts earn more interest, which means a larger tax bill, so the interest rate matters both for what you earn and what you owe.
Understanding the Form 1099-INT your bank sends
In late January or early February, your bank will mail or email you a Form 1099-INT. This form shows exactly how much interest your savings account earned during the previous calendar year. The bank is required to send this to you and to the IRS, so the IRS already knows about your interest income before you file.
The form lists the interest in Box 1. If you have multiple savings accounts at the same bank, they may combine the interest on one form. If you bank at different institutions, you will receive a separate 1099-INT from each one. Keep all of these forms — you will need them when you file your return.
If your interest was very small — less than $10 at most banks — you might not receive a form at all. However, you are still required to report that interest on your tax return. Write down the amount from your account statements if you do not get a form.
Where to report savings interest on your tax return
When you file your federal return, you report the interest on Form 1040 (the main individual income tax form) or on Schedule B if you have interest income from multiple sources. The exact line depends on which form you use, but the IRS instructions that come with the form show you where to put it.
If you use tax software like TurboTax, H&R Block, or TaxAct, the software will ask you about interest income and fill in the right lines automatically. You straightforward enter the amount from your 1099-INT, and the software handles the rest. If you file by hand or with a tax preparer, they will know where to put it.
You also need to report the interest on your state tax return if your state has an income tax. The state form is usually similar to the federal form, and you use the same 1099-INT amount. A few states do not tax interest income, so check your state's rules if you are unsure.
How the tax is calculated on your interest income
The tax you owe on savings interest is not a flat rate — it depends on your total income for the year. If you earned $35,000 in wages and $200 in savings interest, your taxable income is $35,200. That $200 is taxed at your marginal tax bracket, which is the rate you pay on your last dollar of income.
In 2024, if you are single and earn between $11,600 and $47,150, you are in the 12% federal tax bracket. That means the $200 in interest would be taxed at 12%, or $24. If you earn more, you might be in a higher bracket, and the tax would be larger. If you earn less, you might be in the 10% bracket, and the tax would be $20.
This is why high-yield savings accounts matter for taxes: they earn more interest, which pushes your total income higher and can move you into a higher tax bracket. A regular savings account earning 0.01% interest might generate $1 a year in interest and almost no tax. A high-yield account earning 4% or 5% on the same balance could generate $400 to $500 in interest and $50 to $60 in federal tax.
Joint accounts and accounts in someone else's name
If you own a savings account jointly with another person — such as a spouse or parent — the bank will split the interest between you on the 1099-INT. Each person reports their share on their own tax return. Make sure you know which portion is yours before you file.
If you are the custodian of a minor's savings account (a custodial account), the interest belongs to the minor, not to you. The bank will issue a 1099-INT in the child's name and Social Security number. You will need to file a tax return for the child if the interest exceeds a certain threshold, which varies by year. The IRS website has a worksheet to help you determine whether a child's return is required.
If someone else owns the account and you are just authorized to access it, the interest still belongs to the owner. Only the owner reports it on their tax return. The 1099-INT will be issued in the owner's name.
What happens if you do not report the interest
The IRS receives a copy of every 1099-INT that your bank sends to you. If you do not report the interest on your tax return, the IRS will notice the discrepancy. They may send you a notice asking you to explain the missing income, or they may straightforward assess the tax and penalties on your behalf.
The penalty for not reporting income is usually 20% of the unpaid tax, plus interest on the unpaid amount. If the interest was small and you straightforward forgot, the IRS may waive the penalty if you file an amended return quickly. But it is much simpler to report it correctly the first time.
If you owe tax on the interest and do not pay it by April 15th, you will owe interest on the unpaid tax as well. The interest rate changes quarterly and is set by the IRS. Paying on time avoids this extra cost.
Frequently Asked Questions
Do I have to pay taxes on savings interest if I earned very little?
Yes, you must report all interest income, even if it is only a few dollars. However, if your total income is below the standard deduction for your filing status, you may not owe any tax. The standard deduction is the minimum income before you have to pay federal tax, and it changes each year. Check the IRS website to see if your income falls below it.
Can I deduct anything to reduce the tax on my savings interest?
You cannot deduct the interest itself, but you can reduce your overall taxable income through other deductions. The standard deduction is the most common one — most people use it rather than itemizing. If you have significant expenses like mortgage interest or charitable donations, you might itemize instead. A tax preparer can help you figure out which approach saves you more.
What if I moved money between accounts during the year?
The interest is taxed based on when it was earned, not when you moved the money. If you earned $100 in interest in January and then moved the account to a different bank in March, you still report that $100 on your tax return. The new bank will only report interest earned after you opened the account there.
Do I need to make estimated tax payments on savings interest?
Most people do not. Estimated payments are for people with significant income that is not subject to withholding, like self-employment income or large investment gains. Savings interest is usually small enough that you can pay the tax when you file your return. If you expect to owe more than $1,000 in tax for the year, you might consider making quarterly estimated payments, but a tax preparer can advise you on whether it is necessary.
What is the difference between a 1099-INT and a 1099-OID?
A 1099-INT reports interest paid to you during the year. A 1099-OID reports original issue discount, which is a different type of income from certain bonds and securities. If you only have a savings account, you will receive a 1099-INT. If you own bonds or CDs, you might receive both forms, and you report each one separately on your return.