Earnings from high-yield savings accounts or CDs are subject to income tax. Here's how that works (2024)

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• Interest on high-yield savings accounts and CDs is subject to ordinary income tax.
• You will receive Form 1099-INT from any account that earned more than $10 during the year.
• For most savers, the benefits of a high-yield account outweigh any minor bump in taxes.
• See Personal Finance Insider's picks for the best tax software.

It's good practice to store cash for virtually any short-term goal in a high-yield savings account, where your money stays safe, accessible, and growing.

Even when interest rates are low, you can still earn more by keeping cash in a high-yield versus traditional savings account. A CD is a good option for storing money you don't need access to immediately, and may score you an even higher rate.

But the interest earned in a high-yield account — formally referred to as the APY, or annual percentage yield — isn't a total handout. Interest is actually considered income by the IRS, and it's taxed as such.

Do I have to pay taxes on my savings account interest?

Any interest you earnis include ded in your gross income, along with any salaries, wages, and tips, and is taxed as ordinary income. This means that interest income you receive will be taxed at your marginal tax rate after all the appropriate deductions have been taken. For example, if your effective tax rate is 22%, you will pay 22% in taxes for the income received.

To be clear, you're never taxed on your contributions to any high-yield account, only on your earnings. But if you take advantage of a cash bonus offer for opening a new high-yield account, that amount is also added to your interest income total for the year since it's not your own contribution.

For most taxpayers, interest income from a high-yield account isn't enough to significantly increase tax liability, unless the amount of money held in the interest-bearing account is substantial. The benefit of keeping cash in a growing and secure account usually outweighs any minor bump in taxes.

How do I keep track of my savings account interest earnings?

If you earn interest throughout the year from a high-yield savings account, CD, or money-market accounttotaling more than $10, each bank will send you Form 1099-INT to include with your tax return at the start of tax season. Box 1 on the form will list exactly how much interest you earned in your account.

If you earned interest from more than one bank during the tax year, you'll get Form 1099-INT for each one and will need to add up the total interest and record it on Schedule 1 of Form 1040 (US Individual Income Tax Return). If your total interest income is more than $1,500 for the year, your interest income will be reported on Schedule B of Form 1040.

Since you haven't yet paid taxes on the interest income you report on your tax return, you'll owe money to the IRS if the taxes due outweigh the amount of taxes you paid throughout the tax year. However, if you're due for a refund, the taxes you owe in relation to the earned interest income will just reduce the size of your refund.

Do I have to pay taxes on HYSA?

Yes, you have to pay taxes on the interest earned from a savings account. If you earn more than $10 in interest on your savings account, the bank holding your account will send you a Form 1099-T to include in your tax return. This is one reason why you shouldn't keep retirement savings in a savings account.