Is Bank Interest Taxable?

Do you need to report the interest I earn on my savings account on my taxes? Most people don’t know if bank interest is taxable or not, and whether or not you have to report it on your taxes. 

We created this guide to help you figure out if bank interest is taxable in the United States, and how to go about reporting it correctly.

Is bank interest taxable? Yes, bank interest is taxable. Bank interest income is taxed as ordinary income and is therefore subject to regular income tax rates.

Is Bank Interest Taxable?

The interest you earn or receive that may be withdrawn from an account without penalty is taxable income in the year it becomes accessible to you. However, some interest payments might be tax-free.

You should receive Copy B of Form 1099-INT or Form 1099-OID, which reports interest and/or tax-exempt interest payments of $10 or more. You may acquire these forms as part of a composite statement from a broker.

Even if you don’t receive a Form 1099-INT or a Form 1099-OID, you must report all taxable and tax-exempt interest on your federal income tax return.

You must provide the payer of interest income with your correct taxpayer identification number; otherwise, you may be subject to a penalty and backup withholding.

Examples of Taxable Interest

  • Interest on bank accounts, money market accounts, certificates of deposit, corporate bonds, and deposited insurance dividends – Keep in mind that certain distributions, such as dividends, are really taxable interest. Dividends on deposits or share accounts in cooperative banks, credit unions, domestic building and loan associations, domestic federal savings and loan associations, and mutual savings banks are all examples of taxable interest.
  • Interest income from Treasury bills, notes, and bonds – The income from this investment is taxable, but it is exempt from both state and local taxes.
  • Savings Bond interest – You may choose to include the interest in your income each year, but you won’t be able to do so with Series EE and Series I U.S. Savings Bonds until they mature or are redeemed or sold.
  • Other interest – A payment made to you by a firm is also reported to you on Form 1099-INT if it is $600 or more in interest. Interest received as part of damages or delayed death benefits are examples.

Examples of Nontaxable or Excludable Interest

  • If you use tax-free funds from Series EE and Series I bonds issued after 1989 to pay for qualifying post-secondary education expenses during the year, this income is excluded from your taxable income.
  • You must also fulfill the other requirements for the Educational Savings Bond Program in order to qualify for this exclusion. See the amount of excludable interest on Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989, and display it on Schedule B (Form 1040), Interest and Ordinary Dividends. For further information, see Publication 550, Investment Income and Expenses.
  • The tax treatment of some bonds used to pay for government operations and issued by a state, the District of Columbia, or a U.S. possession is taxable at the federal level but not reportable.
  • Tax-exempt interest received during the year is just required to be reported as information and does not convert tax-exempt interest into taxable income.
  • Non-taxable interest earned on VA insurance dividends left in a bank account is not taxable, and they are not reported.

Calculating Taxes On Bank Interest

A savings account’s earnings are taxed at your earned income tax rate for the year. In other words, it’s another source of money and is therefore subject to taxation. The 2019 tax year would be an example of one with top marginal rates between 10% to 37%.

How To File Bank Interest On Your Federal Taxes?

Every year, the financial institution that holds your savings account sends you a 1099-INT form detailing interest earnings for the previous year. It’s possible it’ll show up as part of a larger statement from a broker. That is the amount you must report as taxable income on your account.

If you made more than $10 in interest in your savings account, the financial institution that maintains it sends you a form 1099-INT, stating how much interest you earned during the previous year.

However, the IRS requires you to declare all taxable interest in your income. If you received a cash incentive from your bank to establish a new savings account, that gift is also taxable and must be reported. The IRS will impose penalties and fees if your taxes are not paid on the interest earned in your savings account.

These guidelines only apply to savings accounts that are not internet-based. They should not be associated with IRA savings. The interest earned in these accounts is tax-deferred, and you pay taxes on it only when you take the money out.

The IRS keeps track of all interest paid by banks, credit unions, and other financial institutions to their customers. The IRS will compare your income on your tax return with what your bank tells it to ensure there are no errors. You don’t have to attach a duplicate of your 1099-INT form, but you must report the data on your tax return.

State Taxes On Bank Interest

In addition to the federal government, 43 states impose an income tax. If you reside in one of these states and earn interest on your savings account, you must pay taxes on that income just like you would any other income throughout the year.

Every state has different rules with respect to the taxation of bank interest. However, most states tax this type of income at rates that are very similar to those imposed by the IRS.


In most cases, bank interest is considered taxable income and is therefore subject to regular income tax rates. However, there are a few exceptions, so it’s important to understand how your particular situation is taxed. If you have any questions about the taxation of bank interest, be sure to consult with a qualified accountant or tax specialist. Thanks for reading!