Here’s what HIVE AI had to say about “Do I need to report interest earned on savings accounts?”:
Yes, you are required to report interest earned on savings accounts as income on your tax return, even if you don’t receive a Form 1099-INT from the financial institution.
General Reporting Requirements
Interest income is explicitly included in gross income under the tax code. Gross income comprises all income including interest income. Sec. 61(a)(4). Dawson U.S. Tax Court Opinions: Yair Alonim This includes interest earned on savings accounts, certificates of deposit (CDs), and other interest-bearing accounts.
Interest on bank accounts, money market accounts, certificates of deposit, corporate bonds and deposited insurance dividends are taxable. This includes dividends on deposits or on share accounts in cooperative banks, credit unions, domestic building and loan associations, domestic federal savings and loan associations, and mutual savings banks. IRS.gov Tax Topics
Reporting Thresholds
Financial institutions are required to report interest payments to both you and the IRS when the interest paid during the year reaches certain thresholds:
Every person who makes payments of interest aggregating $10 or more to any other person during any calendar year must make a return according to the forms or regulations prescribed by the Secretary, setting forth the aggregate amount of such payments and the name and address of the person to whom paid. IRC § 6049(a)
However, even if you don’t receive a Form 1099-INT because your interest income was below the reporting threshold, you are still legally obligated to report all interest income on your tax return.
Where to Report Interest Income
How you report interest income depends on the total amount of interest you received during the tax year:
If your total taxable interest for the year is more than $1500, you must complete Schedule B (Form 1040), Interest and Ordinary Dividends and attach it to your Form 1040-SR, U.S. Tax Return for Seniors. If your total interest isn’t more than $1500 for the year, and you’re not otherwise required to report interest income on Schedule B, report the savings bond interest with your other interest on the “Interest” line of your tax return. IRS.gov FAQ
Interest on CDs and Time Deposits
For certificates of deposit (CDs) and other time deposits, interest is generally taxable in the year it is credited to your account, even if you cannot withdraw it without penalty:
There is no question that accrued interest was credited to petitioner’s CD accounts as of the end of the 2006 calendar year. The only question petitioner raises is whether the potential for a penalty if the interest or principal had been withdrawn early is a restriction that would render the interest not subject to tax. Dawson U.S. Tax Court Opinions: Yair Alonim The Tax Court ruled that such interest is still taxable when credited to the account.
Minimal Interest Amounts
If you earned a very small amount of interest, you might wonder if you need to report it. According to IRS guidance:
Generally speaking, if a taxpayer has an amount that is $0.49 or less and rounds down to zero, the zero figure may not negate the taxpayer’s reporting requirement. Depending upon the form, declaration, etc. there may be a requirement to file the form even if that amount on the form is zero. IRS Determination-0910055
However, if the taxpayer in this case is only concerned about a very small amount of interest income, rounding down to zero would give the taxpayer no interest income. Thus, there would be nothing to report on the Schedule B regarding that particular interest income and no need to file a Schedule B based upon that particular income item. IRS Determination-0910055
Foreign Bank Accounts
If you have interest from foreign bank accounts, additional reporting requirements may apply:
The Form 1040, U.S. Individual Income Tax Return, currently includes at the bottom of Schedule B, Interest and Ordinary Dividends, the following question: “At any time during [the taxable year] did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?” A taxpayer who checks the “yes” box is directed to instructions concerning his obligation “to file Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority.” Dawson U.S. Tax Court Opinions: Whistleblower 22716-13W
Tax-Exempt Interest
Some types of interest may be tax-exempt, such as interest from certain municipal bonds. However, even tax-exempt interest must be reported on your tax return:
Every person required to file a return under this section for the taxable year shall include on such return the amount of interest received or accrued during the taxable year which is exempt from the tax imposed by chapter 1. IRC § 6012(d)
Inherited Savings Bonds
If you inherit and redeem savings bonds, you may need to report the accrued interest:
Petitioner inherited a savings bond from his father. Petitioner had the savings bond reissued in his name and redeemed it. Petitioner does not dispute receiving the savings bond or the accrued interest income. Petitioner reported interest income from the savings bond equal to the amount of interest income accumulated from the date the bond was reissued in his name until it was redeemed. Dawson U.S. Tax Court Opinions: Anthony Vennard Hitchman Dawson U.S. Tax Court Opinions: Anthony Vennard Hitchman
Conclusion
In summary, you are required to report all interest earned on savings accounts and other interest-bearing accounts on your tax return, regardless of the amount and whether you received a Form 1099-INT. If your total interest income exceeds $1,500, you must complete Schedule B; otherwise, you can report it directly on the interest line of your Form 1040. Even tax-exempt interest must be reported on your return, though it won’t be subject to tax.
Failing to report interest income can result in penalties and interest charges if the IRS discovers the omission, as interest payments are taxable income reportable under section 6041. CCA-202252008
Sources:
- IRC § 6049(a)
- IRS.gov Tax Topics
- IRS.gov FAQ
- CCA-202252008
- IRS Determination-0910055
- Dawson U.S. Tax Court Opinions: Yair Alonim
- Dawson U.S. Tax Court Opinions: Anthony Vennard Hitchman
Dawson U.S. Tax Court Opinions: Whistleblower 22716-13W
Try Your AI Tax Assistant for Free!
Ready to transform your practice with agentic AI in tax? See firsthand how our cutting-edge AI tax tools can revolutionize your approach to tax research and planning.