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Savings accounts are taxed based on the interest that you accrue during the year. Any interest you earn, you must report to the IRS, which determines how much you pay in taxes based on your personal income tax bracket.
Taxable income includes interest earned on traditional savings accounts, the best high-yield savings accounts (HYSAs), certificates of deposits (CDs), and money market deposit accounts.
Key Takeaways
- Any interest earned on a savings account is taxable income.
- Your bank will send you a 1099-INT form for any interest earned over $10.
- You must report any interest earned on a savings account, even if it’s less than $10.
- Interest from a savings account is considered an addition to your taxable income for the year in which it is paid.
How Savings Accounts Are Taxed
Savings accounts are not generally thought of as investments. However, they do earn money in the form of interest. The IRS considers the interest earned taxable income, whether you keep the money in the account, transfer it to another account, or withdraw it.
When the bank pays interest into your account during the tax year, you will owe taxes on it. Interest from a savings account is taxed at your earned income tax rate for the year. As of the 2025 tax year, those rates ranged from 10% to 37%.
Your financial institution will send you tax form 1099-INT early in the year so that you can report any interest earned on the account if the earnings are more than $10. But whether or not you receive a 1099-INT, you must report all interest income, even if it’s just a few dollars.
If your net investment income (NII) or modified adjusted gross income (MAGI) is over a certain threshold, interest income is also subject to another tax called the net investment income tax.
If you received a cash bonus for signing up for your savings account, you’ll owe income tax on that amount. Your bank will report it on your 1099-INT form.
What Is Not Taxed on a Savings Account?
The earned interest on savings accounts is taxed, but you do not have to pay taxes on the full balance in your account. The original money that you deposit will have already been taxed.
If your savings account has $10,000 and earns 0.2% interest, you are only taxed on the $20 interest the bank pays you. You will not be taxed on the $10,000 principal amount.
Account Interest That Is Not Taxed
The kinds of savings accounts that are usually taxed include traditional and high-yield savings accounts, CDs, checking accounts, and money market accounts. Using other types of accounts for your money can help you ease your tax burden with savings accounts.
Certain types of accounts, such as traditional and Roth individual retirement accounts (IRAs), allow the interest on savings to accrue tax-deferred. You don’t have to report the earnings on a tax-advantaged retirement account as taxable income from year to year. With a traditional IRA or 401(k) account, the taxes are deferred until after you retire. You don’t owe taxes on your account or its earnings while accumulating the money. You owe income taxes on both when you withdraw the money.
With a Roth IRA, you’ve already pay income taxes on the deposits the year that you make them. Then, you don’t owe taxes on the principal or any earnings, as long as you withdraw the money after age 59½.
You do not have to pay interest earned on 529 plans, which are accounts designed to help you pay for education.
How to Pay Taxes on a Savings Account
Each year, your bank will send you a Form 1099-INT, showing interest earned in the previous year. Sometimes, it may come as part of a larger statement from a broker. That is the amount you report as taxable income on the account. Then, you will be taxed according to your income bracket.
Frequently Asked Questions (FAQs)
How is Savings Account Interest Taxed?
Interest from a savings account is taxed at your earned income tax rate for the year. It’s in addition to your earnings and is taxed as such. As of the 2025 tax year, those rates range from 10% to 37%.
What Kind of Form Reports Savings Account Interest?
Early each year, the bank that holds your savings account sends you a form 1099-INT, showing interest earned in the previous year. In some cases, it may come as part of a larger statement from a broker. That is the amount you report as taxable income on the account.
Do I Have to Report Less than $10 in Tax?
According to the IRS, you must report all taxable and tax-exempt interest you earned on your federal income tax return, even if the bank didn’t send you a form.
Does the IRS Check Your Savings Account?
The IRS can check your savings account but will rarely investigate your financial accounts unless you are being audited. Assume the IRS knows about all your bank accounts and report your earnings on these accounts as income.
How to Avoid Paying Taxes on Savings Interest?
You can use a tax-advantaged retirement account to help you reduce your tax burden while you build your income. With a Roth IRA or Roth 401(k), you will pay taxes on the deposits, but the earnings can grow tax-free. When you make withdrawals from a Roth account, you will not owe taxes.
The Bottom Line
You must pay taxes on interest payments you received in your high-yield savings account or other savings account—even if it didn’t add up to much. Taxes can add to inflation’s bite on any returns you earn in your savings account. Consider comparing savings account interest rates to find higher-yield accounts to make what you can.