Yes, you have to report interest income on your taxes, and that’s true even when the amount is small and no 1099 arrives in the mail. The IRS treats interest the same as wages: it’s part of your gross income, taxed at your ordinary income rate, whether it came from a savings account, a bond, a CD, a loan you made to a friend, or an account overseas. What changes from one situation to the next is which form the interest goes on and whether you owe an extra schedule or disclosure alongside your Form 1040.
The $10 Form Rule Is Not a Floor on What You Owe
Banks, brokers, and other payors must send you a Form 1099-INT when they pay you $10 or more of interest during the year.1Internal Revenue Service. About Form 1099-INT, Interest Income That threshold governs the payor, not you. If you earned $4 at one bank and $3 at another, no 1099 will show up, but the full $7 still belongs on your return.
The IRS itself can be a payor you didn’t expect. When a refund is delayed past normal processing time, the government pays you interest, and that interest is taxable. If it reaches $10, a 1099-INT arrives from the Treasury.2Internal Revenue Service. Topic No. 403, Interest Received
Interest is taxable the moment it’s credited to your account, not when you withdraw it. If your bank posts $200 to your savings in December and you leave it there until March, the $200 belongs on the December year’s return.
Where Interest Goes on Your Return
All taxable interest flows to a single line on Form 1040. If your situation is simple, that line is all you fill in. Once you cross certain thresholds or run into specific situations, you also attach Schedule B (Interest and Ordinary Dividends).3Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends
Schedule B is required if any of these apply:
- Your total taxable interest is more than $1,500. You list each payor and amount separately.
- You received interest from a buyer on a seller-financed mortgage where the property is their personal residence.
- You’re claiming the education exclusion for Series EE or I savings bonds.
- You’re reporting a different original issue discount amount than what appears on your 1099-OID.
- You have a financial interest in, or signature authority over, a foreign account (Part III asks about this).
Situations That Change What You Report
Tax-Exempt Municipal Bond Interest
Interest on bonds issued by state and local governments is generally exempt from federal income tax, but you still report the total on your 1040. The IRS uses the figure in other calculations, including whether your Social Security benefits become taxable. The amount comes from Box 8 of Form 1099-INT.4Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID (01/2024)
U.S. Treasury Securities
Interest on Treasury bills, notes, bonds, and savings bonds is fully taxable federally but exempt from state and local income tax.5TreasuryDirect. Tax Information for EE and I Bonds If you live in a high-tax state, that difference is worth keeping in mind when you compare Treasury yields to bank yields.
Savings Bonds Used for Education
If you cash Series EE or I bonds issued after 1989 and use the proceeds for qualified higher education expenses, you may be able to exclude some or all of the interest. The rules are strict: you must have been at least 24 when the bonds were issued, the expenses must be for you, your spouse, or a dependent, and you can’t file as married filing separately. A modified adjusted gross income phase-out also applies, and the cutoff changes each year.6TreasuryDirect. Savings Bonds Using Bonds for Higher Education You claim the exclusion on Form 8815, and the excludable amount flows to Schedule B.7Internal Revenue Service. Form 8815 – Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
Original Issue Discount
Buy a bond below face value (a zero-coupon bond is the classic case) and the difference between what you paid and what you’ll receive at maturity is called original issue discount, or OID. The IRS requires you to report a portion of that built-in gain as interest income each year, even though no cash has changed hands.8Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount Your broker sends Form 1099-OID with the amount.9Internal Revenue Service. About Form 1099-OID, Original Issue Discount
Credit Union “Dividends”
Payments called dividends on credit union share accounts are treated as interest for tax purposes. Your credit union reports them on 1099-INT, not on a dividend form. The same rule applies to earnings at mutual savings banks and building-and-loan associations.10Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
Nominee Interest
Sometimes a 1099-INT arrives in your name for interest that partly belongs to someone else, which happens with joint accounts when the co-owner isn’t your spouse. Report the full amount on Schedule B, then subtract the portion belonging to the other person on a line labeled “Nominee Distribution.” You also issue a 1099-INT to the actual owner for their share and file a copy with the IRS.11Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025)
Accrued Interest on Bond Purchases
When you buy a bond between payment dates, you pay the seller for interest that has already accrued. When the next interest payment comes, the full amount shows up on your 1099-INT even though part of it was really a return of what you paid the seller. Report the full amount on Schedule B, then subtract the accrued portion with a notation reading “Accrued Interest.”11Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025)
Early Withdrawal Penalties
If you cash a CD before it matures, you still report the full interest credited to the account. The penalty the bank charged appears in Box 2 of your 1099-INT, and you deduct it as an adjustment to income, which reduces your adjusted gross income.10Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
Loans to Family and Imputed Interest
If you lend money at a rate below the IRS’s applicable federal rate, the IRS treats the difference between what you charged and what you should have charged as interest income to you. The theory: you gifted the borrower the forgone interest and then received it back. You report that imputed interest as income, and the arrangement can also trigger gift tax consequences.12Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
There’s a $10,000 de minimis exception. If the total outstanding balance of loans between you and the borrower stays at or below $10,000, the imputed interest rules don’t apply. The exception vanishes if the borrower uses the money to buy income-producing assets like stocks or rental property.12Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates The applicable federal rate changes monthly, so check the current figure for the loan term you’re using.
Backup Withholding
If you don’t give a financial institution the correct taxpayer identification number, or if you’ve previously underreported interest and dividend income, the institution may have to withhold 24 percent of your interest and send it to the IRS. This isn’t an extra tax; it’s a prepayment that gets credited on your return like paycheck withholding. To stop it, fix whatever triggered it, whether that means providing the correct TIN or resolving the underreporting.13Internal Revenue Service. Backup Withholding
Interest Earned in a Child’s Name
Interest in a child’s name doesn’t escape tax. A child with unearned income above certain thresholds may owe tax at the parent’s marginal rate rather than the child’s lower rate. For 2026, the first $1,350 of a child’s unearned income is covered by the standard deduction, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at the parent’s rate.
If a child’s only income is interest and dividends totaling less than a set amount (for 2025, $13,500), you can elect to report the child’s income on your return using Form 8814 instead of filing a separate return for the child. Under this election, the first $1,350 isn’t taxed and the next $1,350 is taxed at a flat 10 percent.14Internal Revenue Service. Instructions for Form 8814 The election is convenient, but folding the child’s income into your return can push your AGI higher and affect other benefits tied to it. Run the numbers both ways.15Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income
Foreign Accounts
Interest earned in a foreign bank account is taxable in the U.S. just like domestic interest. U.S. citizens and resident aliens owe tax on worldwide income regardless of where it’s earned.16Internal Revenue Service. U.S. Citizens and Resident Aliens Abroad On top of putting the interest on your return, foreign accounts can trigger two separate disclosures.
The FBAR (FinCEN Form 114) is required if the combined value of your foreign financial accounts exceeds $10,000 at any point during the year. It’s filed electronically through the BSA E-Filing System, separate from your tax return, and is due April 15 with an automatic extension to October 15.17Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
Form 8938, under FATCA, is filed with your tax return and kicks in at higher thresholds. Single filers living in the U.S. must file if foreign financial assets exceed $50,000 on the last day of the year or $75,000 at any time; for joint filers, those figures double.18Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets The two regimes overlap without replacing each other; depending on your balances, you may owe both. Penalties are steep, starting at $10,000 per violation for Form 8938 and up to $12,909 per account for a non-willful FBAR violation.
What Happens If You Don’t Report It
The IRS gets a copy of every 1099-INT and 1099-OID your banks and brokers file. An automated matching system compares those forms against your return, and when the numbers don’t match, you’ll typically receive a CP2000 notice proposing changes and calculating what the IRS thinks you owe.19Internal Revenue Service. Understanding Your CP2000 Series Notice
The costs stack:
- Back taxes on the unreported interest at your marginal rate for that year.
- Interest on the underpayment, running from the original due date and compounding daily.
- An accuracy-related penalty of 20 percent of the underpaid tax if the understatement is large enough.20Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
If you realize you left interest off a prior return, filing Form 1040-X before the IRS contacts you is the better move. Voluntary correction won’t erase the interest charges, but it substantially cuts your penalty exposure.21Internal Revenue Service. Instructions for Form 1040-X (Rev. December 2025) Once a CP2000 arrives, that leverage is gone.