Yes, you have to report interest on a savings account, and you have to report all of it. Federal tax law treats every dollar of interest credited to your account as taxable income the moment it posts, whether the bank sends you a tax form or not.1eCFR. 26 CFR 1.61-7 – Interest The size of the interest payment doesn’t change the rule. Neither does the fact that some banks pay so little you might barely notice it on your statement.
The $10 Form Rule Isn’t a Tax Break
Here’s where most of the confusion comes from. Banks and credit unions are only required to send you a Form 1099-INT when they’ve paid you $10 or more in interest during the year.2Internal Revenue Service. About Form 1099-INT, Interest Income That threshold is a paperwork rule for the bank. It has nothing to do with what you owe.
If your savings account earned $6 last year, no form gets generated. You still owe tax on that $6. The IRS is explicit that your reporting obligation exists whether or not you receive a 1099-INT.3Internal Revenue Service. Topic No. 403, Interest Received To get the number, pull your December statement or year-end summary from the bank.
If you’re pretty sure you earned $10 or more but never got a 1099-INT in the mail, call the bank and ask them to reissue. Don’t hold up your return waiting for it, though. The IRS expects the income reported on time regardless of whether the paperwork arrives.
Where Savings Account Interest Goes on Your Return
Taxable interest goes on Line 2b of Form 1040. Total up the interest from every savings account, CD, money market account, and any other interest-bearing source you have, and put the combined number on that line.4Internal Revenue Service. 1040 (2025) – Section: Line 2b Amounts under $10 that never generated a 1099-INT belong in the same total, based on your records.
If the total from all sources comes out above $1,500, you also have to fill out Schedule B and attach it to your return.5Internal Revenue Service. Instructions for Schedule B (Form 1040) – Section: General Instructions Schedule B asks for each payer by name with the amount received from each. The grand total from that schedule then flows to Line 2b of the 1040.
One boundary worth flagging: interest that accrues inside an IRA, health savings account, or Coverdell education savings account is not reported on Line 2b or Line 2a. Those accounts have their own tax rules and the interest inside them isn’t current-year interest income.6Internal Revenue Service. 1040 (2025) – Section: Line 2a
How Much Tax You’ll Owe on It
Savings interest is taxed as ordinary income. It stacks on top of your wages and gets taxed at whatever federal bracket applies to you. There’s no preferential rate the way there is for long-term capital gains. If you’re in the 22% bracket, every $100 of interest costs you $22.
Higher earners pay more. The 3.8% net investment income tax applies on top of your ordinary rate once your modified adjusted gross income crosses $200,000 for a single filer, $250,000 for married filing jointly, or $125,000 for married filing separately.7Internal Revenue Service. Net Investment Income Tax Savings interest counts as investment income for that calculation.
States generally tax the same interest at their own rates. A few states have no income tax at all; the rest fold savings account interest into your regular state return.
Joint Accounts
When a savings account has more than one owner, the bank issues the 1099-INT to whichever Social Security number is listed first. That person is technically responsible for reporting the entire amount.
If the co-owners want to split the income for tax purposes, the person named on the form files what’s called a nominee return. That means issuing a new 1099-INT to each co-owner (with yourself listed as the payer), and sending the forms to the IRS with a Form 1096.8Internal Revenue Service. General Instructions for Certain Information Returns (2025) – Section: Nominee/Middleman Returns On your own return, you report the full amount from the original 1099-INT, then subtract the nominee portion on Schedule B so you’re only taxed on your share.
Spouses skip all that. If you file jointly, everything goes on one return anyway. Even filing separately, spouses can split account interest between their returns without issuing nominee forms.8Internal Revenue Service. General Instructions for Certain Information Returns (2025) – Section: Nominee/Middleman Returns
What Happens If You Don’t Report It
The IRS runs every 1099-INT through an automated matching system against filed returns. When the numbers don’t reconcile, a CP2000 notice usually shows up, proposing additional tax and starting the collection process.
The accuracy-related penalty for underreporting is 20% of the underpaid tax.9Internal Revenue Service. Accuracy-Related Penalty Interest also accrues on the balance, at 7% for the first quarter of 2026, compounded daily.10Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 If the missing interest changes whether you owed anything and you never filed at all, the failure-to-file penalty tacks on 5% of the unpaid tax per month, capped at 25%.11Internal Revenue Service. Failure to File Penalty
There’s another consequence that catches people off guard. If you’ve previously failed to report interest or gave your bank an incorrect taxpayer identification number, the IRS can direct the bank to withhold 24% of your interest payments going forward and send it straight to the government as backup withholding.12Internal Revenue Service. Topic No. 307, Backup Withholding You get credit for the withholding at tax time, but it takes cash out of your account all year.
For a few dollars of interest, the practical odds of an audit are small, and the IRS rarely chases anyone over pocket change. The obligation itself, though, is absolute. Once the matching system flags a mismatch and generates a notice, the paperwork and time cost of clearing it up quickly outweighs whatever tax was actually at stake.