Interest income is one of the most common types of income reported on individual tax returns. If you earn interest from savings accounts, checking accounts, certificates of deposit (CDs), or other interest-bearing financial products, that income is taxable and must be reported on your federal income tax return. The Internal Revenue Service (IRS) uses Form 1099-INT to help you and them track this income. In this detailed guide, we’ll walk through how to properly report interest income from bank accounts, how to interpret Form 1099-INT, and where it fits into Form 1040.
What Is Form 1099-INT?
Form 1099-INT is an IRS form that financial institutions issue to taxpayers who have earned $10 or more in interest income during the tax year. This form is also used to report other items related to interest, such as early withdrawal penalties or federal income tax withheld.
Financial institutions such as banks, credit unions, brokerage firms, and insurance companies are required to provide this form to both the taxpayer and the IRS by the end of January following the tax year.
Types of Interest Income You Must Report
Interest income that is generally reportable includes:
- Interest from savings and checking accounts
- Interest from certificates of deposit (CDs)
- Interest paid by the U.S. Treasury (such as savings bonds or T-bills)
- Interest from bonds and bond funds (if not otherwise excluded)
- Interest from foreign accounts (even if not reported on 1099-INT)
Even if you do not receive Form 1099-INT because your interest was less than $10, you are still required to report all taxable interest income on your tax return.
Understanding the Boxes on Form 1099-INT
Here’s a breakdown of the key fields on Form 1099-INT and what they mean:
- Box 1 – Interest Income: Total taxable interest income you earned.
- Box 2 – Early Withdrawal Penalty: Penalty imposed for withdrawing funds early from a time deposit like a CD.
- Box 3 – Interest on U.S. Savings Bonds and Treasury Obligations: May be exempt from state and local taxes but not federal taxes.
- Box 4 – Federal Income Tax Withheld: Any backup withholding due to incorrect or missing taxpayer information.
- Box 5 – Investment Expenses: No longer deductible after the Tax Cuts and Jobs Act (TCJA), but still reported.
- Box 8 – Tax-Exempt Interest: Interest income that is exempt from federal income tax (e.g., municipal bonds).
- Box 9 – Specified Private Activity Bond Interest: Tax-exempt interest subject to alternative minimum tax (AMT).
- Box 10 – Market Discount: Discount on bond purchased for less than face value, which may be taxable.
- Box 11 – Bond Premium: May offset interest income if a bond was purchased at a premium.
Where to Report Interest Income on Form 1040
Interest income from Form 1099-INT is generally reported on Form 1040, Schedule B if your total interest income exceeds $1,500 or if you meet other specific criteria. Here’s how it breaks down:
Step 1: Use Schedule B if Required
You must file Schedule B if:
- Your total interest income exceeds $1,500
- You received interest from a seller-financed mortgage
- You received interest as a nominee (on behalf of someone else)
- You have foreign accounts or foreign trust reporting obligations
Schedule B is attached to Form 1040 and provides a breakdown of all your interest sources. If you don’t meet these requirements, you can report the total interest directly on Form 1040, Line 2b (for tax year 2025).
Step 2: Enter Information from Each 1099-INT
List the payer (bank or institution) and the amount from Box 1 of each Form 1099-INT. Total all interest amounts and report:
- Schedule B, Line 1: Total taxable interest
- Schedule B, Line 4: Total reported on Form 1040
Step 3: Enter Tax-Exempt Interest
Tax-exempt interest (Box 8) is not included in taxable income but must be reported on Form 1040, Line 2a. It is still relevant for calculating modified adjusted gross income (MAGI) for certain deductions and credits.
Step 4: Report Federal Withholding
If Box 4 of your 1099-INT shows federal income tax withheld, report this on Form 1040, Line 25b as part of your total federal income tax withheld for the year.
Special Situations in Reporting Interest
Interest as a Nominee
If you received interest on behalf of someone else (e.g., joint account with a child or partner), you must issue a Form 1099-INT to that person and file a nominee return.
U.S. Treasury Obligations
Interest on U.S. Treasury bills, notes, and savings bonds is taxable at the federal level but exempt from state and local income taxes. These should be separated out on Schedule B.
Foreign Interest
If you earned interest from a foreign bank account, you must still report it even if you did not receive a Form 1099-INT. You may also need to file FBAR (FinCEN Form 114) or Form 8938 (FATCA).
Common Mistakes to Avoid
- Forgetting to report small interest income amounts not reported on 1099-INT
- Misreporting tax-exempt interest as taxable income
- Failing to attach Schedule B when required
- Neglecting to report foreign interest income
- Overlooking early withdrawal penalties
Can You Reduce Taxable Interest Income?
There are limited options to reduce taxable interest income directly, but you can:
- Invest in municipal bonds for federally tax-exempt interest
- Utilize tax-deferred accounts such as IRAs or 401(k)s instead of taxable bank accounts
- Use funds for qualified savings bond education expenses to exclude interest
Recordkeeping Requirements
Keep the following documentation to support your reported interest income:
- All 1099-INT forms received
- Bank and brokerage statements
- Details of interest received from private loans or seller-financed notes
- Records of foreign accounts, if applicable
Example: Reporting Interest on Form 1040
Example: You received the following during 2025:
- $150 from a savings account (reported on 1099-INT, Box 1)
- $75 in interest from U.S. Treasury bonds (Box 3)
- $200 in tax-exempt interest from municipal bonds (Box 8)
- $30 withheld in federal tax (Box 4)
Here’s how you would report:
- Form 1040, Line 2b: $225 (150 + 75)
- Form 1040, Line 2a: $200 (tax-exempt interest)
- Form 1040, Line 25b: $30 (federal withholding)
- Attach Schedule B for detailed reporting
Conclusion
Interest income from bank accounts may seem simple, but it requires accurate reporting to stay in compliance with IRS rules. Understanding how to interpret Form 1099-INT, when to use Schedule B, and where to report each item on Form 1040 ensures you avoid penalties and report your taxes correctly. Even small amounts of unreported interest can trigger IRS notices, so it’s best to include every dollar of income, whether or not a form was issued. When in doubt, consult a tax professional for guidance, especially if you have foreign or tax-exempt interest complexities.
