Are Savings Accounts Taxable? Reporting Interest Income

The interest earned from a savings account is considered taxable income by the Internal Revenue Service (IRS) and must be reported on your annual tax return. The tax applies only to the interest payments you receive, not the principal amount you originally deposited. The money you deposit has typically already been taxed as part of your regular income. For example, if a $10,000 balance earns $20 in interest, only the $20 is subject to taxation.

Understanding Taxable Interest Income

Interest income generated from your savings is classified as “ordinary income” by the IRS. This means it is taxed at the same federal income tax rates as your wages or salary, which for the 2025 tax year range from 10% to 37% depending on your total taxable income and filing status. The tax applies to the interest in the year it is paid to you, regardless of whether you withdraw the funds or leave them in the account to compound.

The rules for taxing interest apply broadly across various types of deposit accounts. This includes high-yield savings accounts (HYSAs), money market accounts, and certificates of deposit (CDs). Any interest credited to these accounts is considered taxable income, as are most non-cash bonuses received for opening a new account.

Required Tax Documentation

Financial institutions are required to report interest payments to both you and the IRS using Form 1099-INT, Interest Income. You can expect to receive this form by mail or electronically, typically by January 31 of the year following the tax year in which the interest was earned. The form details the amount of interest paid, with the total appearing in Box 1, “Interest Income.”

A bank is only obligated to issue a Form 1099-INT if it pays you $10 or more in interest during a calendar year. However, the law requires you to report all interest income you receive, even if the total is less than $10 and you do not receive a Form 1099-INT. It is your responsibility to track and report these smaller amounts by reviewing your bank statements.

How to Report Interest on Your Tax Return

When you file your annual income tax return, you must include all taxable interest you received. If your total interest income from all sources is $1,500 or less, you can report the total amount directly on Form 1040, the U.S. Individual Income Tax Return. You do not need to file any additional schedules in this case.

If your total taxable interest income from all sources exceeds $1,500, you must complete and attach Schedule B, Interest and Ordinary Dividends, to your Form 1040. This schedule requires you to list each payer of interest—such as each bank—and the specific amount of interest you received from each one. The total from Schedule B is then carried over to the corresponding line on your Form 1040.

Special Considerations for Savings Account Interest

While interest income is subject to federal tax, it is often taxed at the state level as well. Most states with an income tax consider savings account interest to be taxable income, though the specific rules and rates vary. It is advisable to review your state’s tax regulations to ensure compliance.

For accounts owned by more than one person, such as a joint account, the reporting of interest income is tied to the Social Security number (SSN) of the primary account holder. The bank will issue the Form 1099-INT under that individual’s SSN, and that person is responsible for reporting the income. The IRS provides specific instructions for how joint filers or separate filers can allocate the interest income.

When a savings account is held for a minor, special rules known as the “kiddie tax” may apply. For the 2025 tax year, if a child’s unearned income, which includes interest, exceeds $2,700, the excess amount may be taxed at their parents’ higher marginal tax rate. The first $1,350 of the child’s unearned income is generally tax-free, and the next $1,350 is taxed at the child’s rate. These rules are designed to prevent parents from shifting investment income to their children to take advantage of lower tax brackets.