Interest is one of the many benefits you can receive when you set aside money in a savings account. When you earn interest, your financial institution is essentially paying you to keep your money there.
But that interest comes at a price. Generally, the IRS requires you to pay federal taxes on any savings account interest you earn in a given year, regardless of whether it’s $1 or $100.
[Read: What Is a Good Interest Rate on a Savings Account?]
How Are Savings Accounts Taxed?
The IRS treats interest earned on a savings account as earned income, meaning it can be taxed. So, if you’ve received $125 in interest on a high-yield savings account in 2025, you’ll be required to pay taxes on that interest when you file your federal tax return for the 2025 tax year.
Taxes are paid on the annual percentage yield for a savings account, along with any sign-up bonus you got in the previous tax year. So, if you have a high-yield savings account in 2025 that pays an APY of 4.00% and you get a $200 bonus for opening the account, you’ll pay taxes on the interest earned at 4.00% as well as the $200 bonus.
The amount of tax you pay on savings account interest and sign-up bonuses corresponds with your federal tax bracket.
[Read: Best Savings Accounts.]
When Are You Not Required to Pay Taxes on Savings Account Interest?
Assuming your gross income — including interest — rises above the IRS filing threshold, “every penny of interest must be reported as taxable income,” says Chad Cummings, certified public accountant and tax attorney. But if your gross income falls below that threshold, you may not owe any taxes on savings account interest.
“Technically, if your income is low enough, your taxable income could be zero, leading to no tax,” said Lei Han, a certified public accountant and associate professor of accounting at Niagara University.
Keep in mind that if the IRS finds out you received savings interest but didn’t report it, you could face financial penalties.
[Read: Best Checking Accounts.]
When Does a Financial Institution Issue a 1099 for Savings Account Interest?
According to Cummings, financial institutions, including banks and credit unions, will issue a Form 1099-INT if one of your accounts earned at least $10 in interest during the previous tax year. However, even if you earned less than this amount, you’re still supposed to report the interest to the IRS and pay taxes on it, he says.
Financial institutions are supposed to send 1099-INT forms to holders of interest-bearing accounts by Jan. 31 each year. The form covers interest earned during the previous year.
But what if you don’t receive a 1099 form for a savings account or other interest-earning account? Cummings says you should still report any earned interest on your federal tax return. He says that even if you didn’t receive the form you’re not excused from reporting the interest and paying taxes on it.
To find the amount of interest you received, check your year-end account statements or contact your financial institution, says Cummings.
If you’re still unable to figure out how much savings interest you earned, reach out to the IRS for help, says Han.
What Kinds of Savings Accounts are Taxed?
The types of accounts that typically are taxed include:
— Savings accounts, including traditional and high-yield
— Checking accounts that earn interest
— CDs
[Read: Best CD Rates.]
How Can I Ease the Tax Burden From Savings Account Interest?
You can make a number of moves to ease the tax burden from savings account interest:
— Invest in a tax-deferred account such as a traditional individual retirement account or a 401(k).
— Stash money in a tax-exempt account such as a Roth 401(k) or a Roth IRA. When you retire, you’re allowed to make tax-free withdrawals because any money you deposited has already been taxed.
— Put money in an education-related account such as a 529 plan or a Coverdell Education Savings Account. All interest received from each of these accounts isn’t taxed if the money covers education costs.
More from U.S. News
How to Open a Bank Account Online
What Happens to a Bank Account When an Owner Dies?
8 Things to Know Before Opening a Certificate of Deposit
Do You Pay Taxes on Savings Account Interest? originally appeared on usnews.com
Update 02/09/26: This story was previously published at an earlier date and has been updated with new information.