Are High-Yield Savings Accounts Taxed?

The IRS does not treat high-yield savings account (HYSA) interest any differently than wages or salary.

You pay taxes on what you earn, based on your federal income tax bracket. That rate depends on your total income.

Here is a simple example: If you earn $500 in HYSA interest and fall in the 22% tax bracket, you will owe about $110 in federal taxes on that interest.

Your actual tax liability will depend on your overall income and financial situation.

Federal taxes

HYSA interest is taxed as ordinary income at the federal level. The more you earn overall, the higher your tax bracket and the more you owe on that interest.

Your bank will send you a Form 1099-INT if you earn $10 or more in interest during the year. This form shows the total interest you earned, so you can report it accurately when you file.

State taxes

Most states also tax interest income from savings accounts. The rate depends on where you live.

A few states, including Florida, Texas, and Nevada, have no state income tax, so residents there only pay federal taxes on HYSA interest.

Check your state's tax rules or speak with a tax professional to understand what applies to you.

When you file your taxes, you will list the total interest shown on your 1099-INT on your Form 1040.

You report it as income for the year in which the interest was credited to your account, even if you did not withdraw the money.

If you have accounts at multiple banks, you will receive a separate 1099-INT from each one. Add them all together when reporting your total interest income.

When to use IRS Schedule B

You need to file IRS Schedule B if you earn more than $1,500 in total interest income during the year.

Schedule B is a simple attachment to your Form 1040 that lists each source of interest income and the amount earned from each.

If your total interest income is $1,500 or less, you can report it directly on your Form 1040 without filing Schedule B.

What if you earn less than $10 in interest?

Even if your bank does not send a 1099-INT because you earned less than $10, you are still required to report that interest on your tax return.

The IRS requires you to report all interest income, regardless of the amount.

No. Banks do not automatically withhold taxes from your HYSA interest.

The full interest amount gets deposited into your account, and it is your responsibility to report it and pay taxes when you file.

There is one exception. If you have not provided your bank with a valid taxpayer identification number, or if the IRS has notified your bank that you are subject to backup withholding, the bank may withhold 24% of your interest. This is called backup withholding.

For most account holders, this does not apply. However, if you earn meaningful interest throughout the year, it is a good idea to set aside a portion to cover your tax bill.

Pro Tip: A general rule of thumb is to reserve roughly 20% to 30% of your interest earnings for taxes, depending on your bracket.

High-yield savings accounts are a smart, low-risk way to grow your money. The interest you earn is taxed as ordinary income at both the federal level and, in most states, the state level too.

Your bank will send a 1099-INT if you earn $10 or more, but you must report all interest income no matter how small.

Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Tax rules can change, and your individual situation may differ. Always consult a qualified tax professional or financial advisor for guidance specific to your circumstances. Axos Bank does not provide tax advice.