Money sitting in a U.S. bank account is not taxed just for being there. What gets taxed is the income the account produces: interest the bank credits to you, cash bonuses for opening or funding the account, and, in narrow situations, transfers involving gifts, estates, or foreign accounts. That is the whole shape of bank account taxes for most people, and the rest is detail about how to report each piece.
Your Deposits Are Not Taxed Again
The principal you deposit has already been taxed once — as wages, business earnings, or investment proceeds — before it reached the bank. Moving it into savings or checking does not trigger another round of federal tax, and neither does transferring funds between banks. The United States does not have a federal wealth tax on account balances.
A small number of state and local jurisdictions have historically imposed taxes on intangible personal property that could reach bank deposits, but those levies are rare today. If you’re unsure about your state, check with the state revenue department.
Interest the Bank Pays You Is Taxable Income
Every dollar of interest a bank credits to your account counts as ordinary income for the year it’s credited, whether you withdraw it or not.1Internal Revenue Service. Topic No. 403, Interest Received That covers savings accounts, checking accounts, money market accounts, and certificates of deposit. It’s taxed at your marginal federal income tax rate, which for 2026 ranges from 10% to 37%.2Internal Revenue Service. 1099-INT Interest Income
Timing catches people out. Interest credited in December 2025 is 2025 income even though you file that return in early 2026. You can’t defer the tax by leaving the money in the account. The IRS rule is that the income is taxable once it becomes available to you.1Internal Revenue Service. Topic No. 403, Interest Received
You must report all taxable interest on your federal return, even if the bank never sends you a form.1Internal Revenue Service. Topic No. 403, Interest Received If your total taxable interest for the year is more than $1,500, you also file Schedule B with your Form 1040.3Internal Revenue Service. 2025 Instructions for Schedule B (Form 1040)
Bank Bonuses and Credit Card Rewards
Cash bonuses for opening a new account or hitting a deposit target are taxable. Banks report them on a 1099-INT or a 1099-MISC, and even if no form arrives, the bonus still belongs on your return.
Credit card rewards and cashback earned through spending work differently. The IRS generally treats those as rebates on purchases rather than income, so they don’t create a tax bill.
How Banks Report Your Interest to the IRS
Banks must file Form 1099-INT with the IRS and send you a copy whenever they pay you $10 or more in interest during the year.4Internal Revenue Service. About Form 1099-INT, Interest Income If you earn less than $10, no form is required, but the income is still taxable and still reportable.1Internal Revenue Service. Topic No. 403, Interest Received
In some cases the bank will withhold tax directly from your interest before crediting it. This “backup withholding” is 24% and applies if you haven’t given the bank a correct Social Security number or if the IRS has told the bank you’ve underreported income before.5Internal Revenue Service. Backup Withholding You claim credit for anything withheld when you file your annual return.
Joint Accounts
When two or more people share an account, the bank usually reports all of the interest on a single 1099-INT tied to the primary holder’s Social Security number. That doesn’t mean the primary holder owes tax on all of it. If part of the interest belongs to a co-owner, the primary holder can reallocate the income through what the IRS calls a nominee distribution.1Internal Revenue Service. Topic No. 403, Interest Received
The primary holder reports the full 1099-INT amount on Schedule B, then subtracts the co-owner’s share as a nominee distribution. They also file a separate 1099-INT and a Form 1096 transmittal with the IRS and send a copy to the co-owner.1Internal Revenue Service. Topic No. 403, Interest Received If the co-owner is your spouse and you file jointly, none of that paperwork is needed. The income is already on your shared return.
Custodial Accounts and the Kiddie Tax
Interest earned in a custodial account belongs to the child, not the parent. But the IRS limits how much of a tax break that shift produces.
For 2026, the first $1,350 of a child’s unearned income is tax-free. The next $1,350 is taxed at the child’s own rate. Anything above $2,700 is taxed at the parent’s marginal rate.6Internal Revenue Service. Rev. Proc. 2025-32 The rule applies to children under 18, and in some cases up to age 23 for full-time students who don’t earn enough to cover half their own support.7Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
If a child’s total unearned income is more than $1,350 but less than $13,500, parents can elect to include it on their own return instead of filing a separate return for the child.6Internal Revenue Service. Rev. Proc. 2025-32 For most families this rarely matters. It starts to matter when a custodial account holds real savings or CDs.
Estimated Taxes When Interest Gets Big
A large balance in a high-yield savings account or CD ladder can throw off enough interest to push you past what your paycheck withholding covers. The IRS expects quarterly estimated tax payments if you’ll owe $1,000 or more beyond what’s already withheld from wages.8Internal Revenue Service. Estimated Taxes
You generally avoid the underpayment penalty if your withholding and estimated payments cover at least 90% of your current-year liability or 100% of last year’s tax, whichever is smaller.8Internal Revenue Service. Estimated Taxes Worth checking mid-year rather than in April.
Penalties for Leaving Interest Off Your Return
The IRS receives a copy of every 1099-INT your bank files, so unreported interest is one of the easiest mismatches for its systems to catch. If you leave interest off and the IRS finds you were negligent, the accuracy-related penalty is 20% of the underpaid tax.9Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments You’ll also owe interest on the unpaid balance from the return’s original due date.
If unreported interest is part of a broader understatement exceeding the greater of 10% of the correct tax or $5,000, the same 20% penalty applies to the full understatement.9Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
Depositing Into Someone Else’s Account
Putting money into another person’s bank account is treated as a gift for federal tax purposes. In 2026 you can give up to $19,000 per recipient per year without any gift tax filing requirement.10Internal Revenue Service. Frequently Asked Questions on Gift Taxes Married couples can effectively double that to $38,000 per recipient through gift-splitting.
Above $19,000 to any one person, you file Form 709, but that doesn’t necessarily mean you owe gift tax. Amounts above the annual exclusion reduce your lifetime gift and estate tax exemption, which is $15,000,000 per individual in 2026.11Internal Revenue Service. Whats New – Estate and Gift Tax The person receiving the deposit owes no income tax on the gift itself. Any interest that money later earns is their taxable income.
Bank Balances at Death
When someone dies, every dollar in their bank accounts is included in their gross estate for federal estate tax purposes, valued as of the date of death.12eCFR. 26 CFR 20.2031-5 – Valuation of Cash on Hand or on Deposit For most families this changes nothing at the federal level, because the 2026 federal estate tax exemption is $15,000,000 per individual.11Internal Revenue Service. Whats New – Estate and Gift Tax
State estate taxes are a different matter. Several states set their own exemptions well below the federal number, so a balance that clears the federal line can still be exposed at the state level.
Foreign Bank Accounts
If you’re a U.S. citizen or resident with accounts outside the country, you face reporting obligations that go well beyond a 1099-INT. They apply even if the foreign account earns zero interest.
FBAR (FinCEN Form 114)
You must file a Report of Foreign Bank and Financial Accounts if the combined balance of all your foreign financial accounts exceeds $10,000 at any point during the year.13Financial Crimes Enforcement Network (FinCEN). BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114) The filing goes to FinCEN electronically through the BSA E-Filing system, not to the IRS with your tax return.14Financial Crimes Enforcement Network. How Do I File the FBAR
Penalties are steep. For a non-willful violation, the statutory cap is $10,000 per annual report. For willful violations, the penalty is the greater of $100,000 or 50% of the account balance at the time of the violation.15Office of the Law Revision Counsel. 31 USC 5321 – Civil Penalties Those are base statutory numbers; inflation adjustments push the actual figures higher each year. Criminal penalties are possible for willful failures.
FATCA (Form 8938)
A separate obligation under the Foreign Account Tax Compliance Act requires certain taxpayers to report foreign financial assets to the IRS on Form 8938. The filing thresholds are higher than the FBAR’s $10,000 and depend on filing status and where you live:16Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
- Single, living in the U.S.: foreign assets exceed $50,000 on the last day of the year or $75,000 at any point during the year.
- Married filing jointly, living in the U.S.: foreign assets exceed $100,000 on the last day of the year or $150,000 at any point during the year.
- Single, living abroad: foreign assets exceed $200,000 on the last day of the year or $300,000 at any point during the year.
- Married filing jointly, living abroad: foreign assets exceed $400,000 on the last day of the year or $600,000 at any point during the year.
Failing to file Form 8938 carries an initial $10,000 penalty. If you still don’t file within 90 days of an IRS notice, an additional $10,000 accrues for each 30-day period of continued non-compliance, up to $50,000 in additional penalties.17Internal Revenue Service. Instructions for Form 8938 The FBAR and Form 8938 are independent obligations, with different thresholds, different filing destinations, and separate penalty structures. Accounts abroad often mean you need to file both.