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Is Savings Account Interest Taxable?

  • Savings account interest is treated like any other source of income and is subject to federal tax.
  • Your savings account interest tax rate is the same as your regular tax rate and can be anywhere from 10% to 37% depending on your total income/tax bracket.
  • You can avoid paying taxes if you earn less than $10 in interest or if you have a tax-free or tax-deferred savings option, such as an HAS or Roth IRA.
  • To pay taxes on your savings account interest, you’ll include that income on your Form 1040.
  • The total interest earned should be communicated on a 1099-INT issued to you by the interest-paying bank or other financial institution.
  • If you earn interest in excess of $1,500, you must itemize the earnings by source using Schedule B.

Interest earned on savings accounts is taxable, meaning not all interest is necessarily free money. But, earned interest is money you wouldn’t have made otherwise, so you’re making your money work for you.

To help you make sense of the IRS’s outlook on savings account interest and learn which forms you’ll need when April rolls around, we’ve put together this comprehensive guide. 

In it, we’ll cover crucial topics like:

  • Is savings account interest taxable?
  • How savings account interest is taxed
  • How to file taxes for savings account interest

Is savings account interest taxable?

The interest earned on savings accounts is taxable, according to the Internal Revenue Service (IRS). In the United States, interest is treated like any other form of income, and it must be declared when you file your taxes. This is true at the federal level, and some states also levy their own interest-related taxes.

If you have any of the following types of savings accounts, you will likely be taxed, and you must disclose all interest earned:

Note that there’s a common misconception stating you only have to report interest earned on a savings account if it’s over $10. You must report all interest earned, though you may not be levied a tax for interest totaling under that $10 threshold. This applies even if your bank doesn’t send you a form listing your taxable interest.

How savings account interest is taxed

Your interest income tax rate is the same rate for your other forms of income, such as your work salary or money you make from a side hustle. Ultimately, the total amount of money you make in a calendar year determines your tax rate.

While you don’t pay different tax rates for different types of saving options, you will pay higher overall taxes on high-yield saving accounts simply because your account is generating more income. Higher APY means higher earnings, and you’ll have to pay the IRS accordingly.

To pay taxes on savings account interest, you’ll report it to the IRS using Form 1099-INT. This form will be issued to you by the bank that paid you the interest.

This table shows the federal marginal tax rates for the 2024 tax year (with taxes due April 2025):

Tax rate Single filers Married individuals filing jointly Married filing separately Heads of households
10% $0 to $11,600 $0 to $23,200 $0 to $11,600 $0 to $16,550
12% $11,601 to $47,150 $23,201 to $94,300 $11,601 to $47,150 $16,551 to $63,100
22% $47,151 to $100,525 $94,301 to $201,050 $47,151 to $100,525 $63,101 to $100,500
24% $100,526 to $191,950 $201,051 to $383,900 $100,526 to $191,950 $100,501 to $191,950
32% $191,951 to $243,725 $383,901 to $487,450 $191,951 to $243,725 $191,951 to $243,700
35% $243,726 to $609,350 $487,451 to $731,200 $243,726 to $365,600 $243,701 to $609,350
37% $609,351 or more $731,201 or more $365,601 or more $609,350 or more

So, if you’re a single filer who made $60,000 last year, you’ll be taxed on all income — including your savings account interest — at a rate of 22%. If you and your spouse are filing jointly and made a combined $400,000 last year, you’ll be taxed at a higher rate of 32%.

How much tax-free interest can you earn on savings?

The IRS requires you to report every penny you make, even if you’re self-employed or have income not reported by the issuing employer or other entity. 

Banks are only required to send you a Form 1099-INT, which declares interest paid during the relevant calendar year, if they paid you $10 or more in interest the previous tax year. If your bank sends you this form, they’ll also send a copy to the IRS.

Banks aren’t required to send a 1099-INT to you or the IRS if they paid you less than $10 in interest for the year in question. You’re still legally required to report that interest, though. You can enjoy up to $10 of interest tax-free, as long as the income itself is still declared.

When are you not required to pay taxes on savings account interest?

In addition to skipping taxes on annual interest earnings under $10, you may not be taxed on your savings interest if you don’t have any other taxable income.

Because IRAs are tax-deferred, the interest you make on that type of retirement account isn’t taxable until you withdraw your money. The IRS asks you to report income the year you make it, so you would report IRA income when you withdraw it, likely upon retirement, which is also when you’d pay taxes.

Our top picks for the best savings accounts

How to avoid tax on savings accounts

You can’t completely avoid tax on interest income if you earned that interest via a standard or high-yield savings account (assuming your total is over $10). However, it is possible to avoid paying taxes on other types of savings accounts.

If you’re wondering how to save money and earn tax-free interest, check out these savings options:

How to file taxes for savings account interest

If you’ve earned interest on a savings account that totals at least $10, you should receive a Form 1099-INT from your bank. This document usually comes in January or February of the new year and includes details from the previous year. So, for interest earned in 2024, you should get your 1099-INT in the mail in January or February 2025.

You’ll then use the details from that form to fill out your Form 1040 tax return. If you’ve earned interest over $1,500 — from a single source or as a combined total from multiple accounts — you must itemize to show how much you earned from each account. To do that, head to Schedule B, an attachment dedicated to accurately recording your interest and dividend income.

Remember, you must report all interest received in the corresponding tax year, even if you didn’t receive a 1099-INT.

FAQ: Is savings account interest taxable?

How much tax do I pay on a savings account?

The amount of tax you’ll pay on savings account interest depends on your overall interest earned and your tax rate. You don’t pay taxes on the money in your savings account, because you paid taxes on that money when you earned it. However, you do pay taxes on savings account interest when you file your Form 1040.

Can I open a tax-free savings account?

You have to pay tax on savings account interest, including business savings accounts, unless you open a tax-free savings account or other saving-oriented financial alternative. You may be able to skip or at least defer taxes if you stockpile your money in a traditional IRA, 401(k), Roth IRA, health savings account (HSA) or 529 college savings plan.

What form do I use to report earned interest on my taxes?

You can report your interest income as part of your overall income when you file your Form 1040 individual tax return. To do that, you’ll use information from Form 1099-INT, a document sent to you by each bank that paid you interest the previous year. 

Banks may combine interest from multiple accounts at the same institution into one 1099-INT, or you may receive a 1099-INT for each interest-bearing account. You must report interest earned even if you didn’t receive a 1099-INT.

How much tax-free interest can I earn on my savings?

For a standard or high-yield savings account, you can earn up to $10 in interest without paying taxes. You still need to report that income, though. For kid’s savings accounts, you’ll need to pay tax if the interest income exceeds the IRS thresholds for the year.

You can also avoid paying taxes on savings options with deferred or tax-free status, such as an HSA, college savings plan or Roth IRA.

Do I need to report savings account interest of less than $10?

You must report all savings account interest earned for the calendar year, even if that totals less than $10. This is important to remember, as your bank won’t send you a 1099-INT for interest totaling less than $10. It’s up to you to be forthcoming and account for all your income, regardless of the amount or the source.

What happens if you don't report savings account interest?

The interest on savings accounts is taxable, which means you have to report those earnings to the IRS. If you fail to report interest or any other type of income, you could face financial penalties. 

The bank sending your Form 1099-INT also sends a copy to the IRS, so the government knows how much interest you earned even if you don’t list it as part of your income on your 1040. You’ll be liable for the amount owed plus a fine that increases the longer you wait to pay.

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Alana Luna (Musselman)
Alana Luna (Musselman) Writer & Content Strategist

Alana Luna (Musselman) is a versatile storyteller with over a decade of writing experience. She is passionate about helping people build their business through unique and engaging content.

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Blake Esken
Blake Esken Los Angeles Times

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