How Much Interest Do You Need to Report on Taxes?

Interest earned from various financial sources is generally considered taxable income by the IRS. Taxpayers must properly report this income to fulfill their tax obligations.

Understanding Taxable Interest Income

Taxable interest income encompasses earnings received from lending money or from financial investments. This includes common sources such as interest earned on funds held in savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs) at banks and credit unions. Interest from corporate bonds is also generally taxable.

Interest from U.S. Treasury bills, notes, and bonds is subject to federal tax. Interest from loans made to others is also considered taxable income. Certain distributions, like those from cooperative banks or credit unions, are treated as taxable interest.

Common Reporting Thresholds and Forms

Financial institutions are generally required to report interest payments to you and the IRS. If you receive $10 or more in interest from a single payer, that entity sends you Form 1099-INT. This form details the interest income received. The $10 threshold applies to the total interest paid to an individual under a single taxpayer identification number.

For interest received in the course of a trade or business, or from certain other sources, the reporting threshold is $600 or more. Some debt instruments issued at a discount from their face value generate “Original Issue Discount” (OID) interest, which is reported on Form 1099-OID. This OID is considered taxable interest that accrues over the life of the obligation.

All taxable interest income must be reported on your tax return, regardless of the amount or whether you receive a Form 1099. If you earn less than $10 in interest from a bank and do not receive a Form 1099-INT, you are still obligated to report that interest. If a Form 1099 is not received, the interest income is still reported on your tax return. Failure to report all earned interest can lead to penalties and interest charges from the IRS.

Specific Situations for Interest Reporting

Certain types of interest have specific reporting requirements. Interest earned from municipal bonds, for example, is generally exempt from federal income tax. However, this tax-exempt interest must still be reported on your federal tax return, on Form 1040, line 2a, and potentially Schedule B. This reporting is for informational purposes, as the amount can affect certain other tax calculations, such as the taxable portion of Social Security benefits.

Interest income derived from foreign sources is generally taxable in the United States, regardless of where earned or if foreign taxes paid. U.S. taxpayers are taxed on their worldwide income, including passive income like foreign interest. While foreign interest is taxable, there may be potential reporting requirements for foreign bank accounts, such as FinCEN Form 114 (FBAR) or Form 8938, if certain thresholds are met. The FBAR generally applies if the aggregate value of foreign financial accounts exceeds $10,000 at any point during the year, while Form 8938 thresholds are higher and vary based on filing status and residency.

When an individual lends money to another person or entity and charges interest, this interest income is also taxable. This applies even if no Form 1099-INT is issued. The lender is responsible for tracking and reporting this income on their tax return.

Reporting Interest on Your Tax Return

The mechanics of reporting interest income on your tax return typically involve Schedule B, Interest and Ordinary Dividends. This form is used to list all sources of interest and dividend income. Schedule B is generally required if your total taxable interest income exceeds $1,500. It is also required under other conditions, such as having a financial interest in or signature authority over a foreign financial account.

If Schedule B is required, you will list each payer’s name and the amount of interest received. The total taxable interest from Schedule B is then transferred to Form 1040, U.S. Individual Income Tax Return, to line 2b. Tax-exempt interest, even though not taxable, is reported separately on Form 1040, line 2a. If your total taxable interest is $1,500 or less and none of the other Schedule B conditions apply, you can generally report the income directly on Form 1040, line 2b, without attaching Schedule B.