How Much Interest Do You Have to Report on Taxes?

It is necessary to accurately report all income, including interest, on your federal tax return. Understanding the requirements for reporting interest income is an important part of tax compliance.

Understanding Taxable Interest Income

Interest income represents money earned from funds you have deposited or lent. Most types of interest income are subject to federal income tax. This includes interest from common sources like savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). Interest earned on corporate bonds is also considered taxable income. Additionally, interest derived from U.S. Treasury bonds, notes, and bills is taxable at the federal level, though it is exempt from state and local income taxes. If you lend money to another party, such as through a seller-financed mortgage, any interest you receive is generally taxable. Even small amounts of interest are technically considered taxable income, regardless of whether you receive official tax forms.

Receiving Interest Income Statements

Financial institutions, including banks, credit unions, and brokerage firms, are required to inform you and the IRS about interest income you have earned. This is typically done using Form 1099-INT, “Interest Income.” A Form 1099-INT is generally issued if the interest you earned from a single payer is $10 or more. However, even if your interest earnings are less than $10 and you do not receive a Form 1099-INT, the income is still taxable and must be reported on your tax return. Financial institutions usually mail these forms by January 31st each year. If you believe you earned interest but did not receive a form, you should check your account statements or contact the payer directly.

Including Interest on Your Tax Return

If your total taxable interest income for the year is $1,500 or more, you generally need to report it on Schedule B, “Interest and Ordinary Dividends,” which is attached to Form 1040. Schedule B requires you to list the name of each payer and the amount of interest received from them. If your total taxable interest is less than $1,500, you can typically report it directly on the main Form 1040, specifically on the “Taxable interest” line. You will transfer the total interest amount from your Form 1099-INT, or your own records if no form was received, to the appropriate line on Schedule B or Form 1040. Tax preparation software and online filing platforms are designed to guide you through this process, ensuring accurate entry of your interest income.

Interest Income Not Subject to Tax

The most common example is interest earned from certain state and local government bonds, often referred to as municipal bonds. This interest is generally exempt from federal income tax, and in some cases, may also be exempt from state and local taxes if issued within your state of residence. Other less common exemptions exist, such as interest from certain U.S. savings bonds used for qualified higher education expenses, provided specific conditions are met. Despite being tax-exempt, this interest still needs to be reported on your tax return for informational purposes. You report tax-exempt interest on Form 1040, line 2a, as “Tax-exempt interest.”