HYSA Taxes: What You Need to Know
Yes, high-yield savings account interest is taxable. Here's how it works, what forms to expect, and how to keep more of your earnings.
Is HYSA Interest Taxable?
Yes. Interest earned on a high-yield savings account is taxable as ordinary income. You pay federal income tax (and usually state tax) on all interest earned, even if you don't withdraw it.
The IRS considers interest "constructively received" when it's credited to your account. That means you owe taxes on interest in the year it's earned, regardless of whether you move the money or leave it in the account.
This applies to all savings accounts, not just high-yield ones. The higher the APY, the more interest you earn, and the more tax you'll owe. But earning more interest is still better than earning less -- the tax is only on the gains.
How Much Tax Will You Owe?
The tax depends on your marginal federal tax bracket. Here's what you'd owe on $10,000 at 4.5% APY = $450 interest:
Still profitable -- you keep $342-$396 on a $10K deposit. That's money you wouldn't have earned in a checking account paying 0.01% APY.
1099-INT: The Tax Form
Banks are required to send you a 1099-INT form if you earn $10 or more in interest during the tax year.
- •When to expect it: Banks must send 1099-INT forms by January 31. You should receive yours by mid-February, either by mail or through your bank's online portal.
- •Report all interest: Even if you earn less than $10 and don't receive a 1099-INT, you're still required to report the interest on your tax return.
- •Schedule B: If your total interest income from all sources exceeds $1,500, you'll need to file Schedule B with your tax return.
- •Multiple accounts: You'll receive a separate 1099-INT from each bank where you earn $10 or more. If you have several HYSAs, expect multiple forms.
State Taxes on Savings Interest
Most states tax savings interest as ordinary income, adding 3-13% on top of your federal tax bill. However, some states have no income tax at all.
States With No Income Tax
If you live in one of these states, you'll only owe federal tax on your savings interest. For everyone else, your total tax rate on interest is your federal bracket plus your state rate.
Tax-Advantaged Alternatives
For those looking to minimize taxes on their savings, consider these alternatives:
I-Bonds
Exempt from state and local taxes. Federal tax can be deferred until you redeem the bond. Inflation-protected returns.
Learn about I-Bonds →Treasury Bills
Exempt from state and local taxes. Short-term maturities (4 weeks to 1 year). Backed by the full faith and credit of the U.S. government.
View Treasury rates →Roth IRA
Tax-free growth and tax-free withdrawals in retirement. Contributions are made with after-tax dollars. Annual contribution limits apply ($7,000 in 2026, or $8,000 if age 50+).
529 Plans
Tax-free growth and withdrawals when used for qualified education expenses. Many states offer a state tax deduction for contributions. Best for education savings goals.
Tips for Tax Season
- 1.Track all bank accounts that earn interest. Keep a list of every savings account, CD, and money market account you hold so you don't miss any 1099-INT forms.
- 2.Watch for 1099-INT forms in January. Check your mail and your bank's online portal. Forms are due by January 31 but may arrive into February.
- 3.Report all interest, even without a 1099. If you earned less than $10 at a bank, you won't get a form, but you still must report the interest income.
- 4.Consider estimated payments if you earn significant interest. If your total interest income is large enough, you may need to make quarterly estimated tax payments to avoid an underpayment penalty.
- 5.Keep records of any interest that was withheld. If you had backup withholding on your interest, make sure to claim credit for those amounts on your tax return.
Important Disclaimer
This guide provides general information about taxes on savings account interest. It is not tax advice. Tax laws are complex and change frequently. Your individual tax situation depends on many factors. Please consult a qualified tax professional or CPA for advice specific to your circumstances.
Frequently Asked Questions
Is HYSA interest taxable?
Yes. Interest earned on a high-yield savings account is considered ordinary income by the IRS and is subject to federal income tax. Most states also tax savings interest. You owe tax on interest in the year it is credited to your account, even if you don't withdraw it.
Will I get a 1099 for savings account interest?
Banks are required to send you a 1099-INT form if you earn $10 or more in interest during the year. You should receive it by mid-February. Even if you earn less than $10 and don't receive a form, you are still required to report the interest on your tax return.
How much tax will I owe on savings interest?
The tax you owe depends on your marginal tax bracket. For example, if you earn $450 in interest and are in the 22% federal tax bracket, you would owe about $99 in federal tax on that interest. State taxes may add an additional 3-13% depending on where you live.
Are there tax-free alternatives to a HYSA?
Yes. Treasury bonds and bills are exempt from state and local taxes. I-Bonds also offer tax deferral on federal taxes until redemption. Roth IRAs provide tax-free growth, and 529 plans offer tax-free withdrawals for education expenses.
Do I pay state taxes on savings interest?
In most states, yes. However, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you won't owe state income tax on your savings interest.