Do I Need to Report Interest Earned on a Savings Account?

Yes — you have to report interest earned on a savings account, and there is no minimum dollar amount that lets you skip it. Federal law treats interest as gross income, so every cent your bank credits you belongs on your tax return.¹ The confusion usually starts with the Form 1099-INT your bank sends only when you earn $10 or more, which leads people to assume smaller amounts are tax-free. They aren’t.

Savings interest is ordinary income. It stacks on top of your wages and gets taxed at your regular marginal rate. If you sit in the 22% bracket, your interest is taxed at 22%. There’s no capital-gains discount for this kind of income.¹

The $10 on Your 1099-INT Isn’t a Tax Threshold

Banks and credit unions must issue a Form 1099-INT (and send a copy to the IRS) whenever they pay you $10 or more in interest during the year.² That’s the bank’s reporting trigger. It says nothing about your tax obligation. Earn $6 in interest, get no form, and you still owe tax on that $6.³

Financial institutions have to get the 1099-INT to you by January 31 following the tax year.³ If February rolls around and one hasn’t arrived from an account you know cleared $10, call the bank. Your December statement will also show total interest paid for the year, which is enough to file with.

One narrow out: if your total income for the year falls below the standard deduction — $16,100 for single filers or $32,200 for married couples filing jointly in the 2026 tax year — you may not be required to file a federal return at all.⁴ But if you file for any reason, the interest goes on the return.

How to Report It on Your Return

Add up Box 1 from every 1099-INT you receive, add any interest under $10 that never generated a form, and put the total on Line 2b of Form 1040. That’s the whole job for most people.

If your taxable interest for the year runs over $1,500, you also fill out Schedule B, which asks you to list each payer’s name and how much they paid.⁵ The $1,500 line isn’t a tax threshold. You owe the same tax either way. Schedule B just gives the IRS an itemized list it can match against what banks reported.

Don’t Forget the Early Withdrawal Penalty Deduction

If you cracked open a CD before it matured and paid an early withdrawal penalty, that penalty is deductible, and it’s above-the-line, so you don’t have to itemize to claim it. The bank shows the penalty in Box 2 of your 1099-INT while Box 1 still reports the full interest without any reduction.² Claim the deduction on Schedule 1 of Form 1040. Skip it and you pay tax on income you didn’t really keep.

Things That Count as Interest but Don’t Feel Like It

A cash bonus for opening a new savings or checking account is taxable income. Some banks report it on a 1099-INT, others on a 1099-MISC, but either way you owe tax on the full bonus. A $300 sign-up bonus is $300 of ordinary income.⁶

Interest the IRS pays you on a late refund is also taxable. If that interest hits $10 or more, the IRS will send you a 1099-INT. People overlook this because the refund itself feels like their own money coming back, but the interest tacked on by the government is new income.

One boundary worth knowing: interest on municipal bonds is generally exempt from federal tax, and interest on U.S. Treasury securities is federally taxable but exempt from state and local income tax.⁶ A regular bank savings account gets neither break. Every dollar of that interest is taxable at both levels wherever a state income tax applies.

Joint Accounts and Nominee Interest

When two or more people share a savings account, the bank issues a single 1099-INT to whichever Social Security number is listed first. That person is on the hook for making the tax return match, but they don’t owe tax on interest that actually belongs to the co-owner.

The fix is a nominee distribution. The person who received the 1099-INT reports the full amount on Schedule B, then subtracts the co-owner’s share on a line labeled “Nominee Distribution.” They also issue a 1099-INT to the actual owner for that share and file a copy with the IRS along with Form 1096.⁷ Skip the paperwork and the IRS will keep treating all the interest as yours.

Interest in a Child’s Savings Account

Money sitting in a minor’s savings account isn’t off-limits to the IRS. Once a child’s unearned income (interest, dividends, and similar investment income) tops $2,700, the excess can be taxed at the parent’s marginal rate rather than the child’s. This is the “kiddie tax,” and it covers children under 19, or under 24 if they’re full-time students.⁸

If the child’s total unearned income stays under $13,500 and consists only of interest and dividends, a parent can pull that income onto their own return using Form 8814 instead of filing separately for the child.⁸ Above that, the child needs their own return with Form 8615 attached. Most ordinary kid savings accounts stay well below these numbers. Custodial accounts funded with larger gifts don’t.

A Note on Foreign Savings Accounts

A savings account held outside the United States is taxable to a U.S. person just like a domestic one, but it also triggers separate reporting. If the combined value of your foreign financial accounts crosses $10,000 at any point during the year, you must file the FBAR (Report of Foreign Bank and Financial Accounts) electronically with FinCEN, whether or not the accounts paid any interest.⁹ Higher-value holdings can also require Form 8938 under FATCA, at thresholds starting at $50,000 for single filers living in the U.S.¹⁰ One doesn’t replace the other.

What Happens if You Don’t Report It

Your bank sends the IRS every 1099-INT it sends you. An automated matching system compares those forms line by line against what you file, so unreported interest is one of the easier misses for the IRS to catch. When something doesn’t line up, you’ll usually get a CP2000 notice proposing extra tax.

If the IRS decides the underpayment came from negligence or a substantial understatement of income, an accuracy-related penalty of 20% of the underpaid amount applies.¹¹ Interest runs on top of that from the original due date of the return until you pay, currently at 7% per year, compounded daily.¹²

The IRS generally has three years from the date you filed to assess additional tax.¹³ That stretches to six years if you leave off more than 25% of your gross income, and there’s no time limit at all if you never filed a return. For someone who simply forgot a small 1099-INT, the realistic outcome is a notice, a bit of back tax, and interest. The damage stays small when you respond to the notice quickly and grows fast when you don’t.

1
Office of the Law Revision Counsel. 26 U.S. Code 61 – Gross Income Defined
2
Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID
3
Internal Revenue Service. General Instructions for Certain Information Returns
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends
6
Internal Revenue Service. Topic No. 403, Interest Received
7
Internal Revenue Service. 2025 Instructions for Schedule B (Form 1040)
8
Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
9
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
10
Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
11
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
12
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
13
Office of the Law Revision Counsel. 26 U.S. Code 6501 – Limitations on Assessment and Collection