General Question

RedDeerGuy1's avatar

Do people pay tax on interest earned in savings accounts?

Asked by RedDeerGuy1 (13512points) June 10th, 2018

How much can one earn before paying tax on your interest in a savings account in a typical bank?

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10 Answers

LuckyGuy's avatar

Yes. We do pay tax on interest. If the interest is below $10 for the year we do not have to claim it.

SQUEEKY2's avatar

Same here in Canada @RedDeerGuy1 but you can open a T.F.S.A (tax -free-savings-account) and you don’t pay tax on interest it makes but you are regulated by how much you can put in it a year.
On aside note over the years it can add way up and it’s still tax free.

2davidc8's avatar

Yes, you do (at least in the U.S.). But because of the standard deduction of $6,350 (for a single person), and the personal exemption of $4,050 (these are 2017 numbers), you don’t have to pay any tax on the first $10,400 of earnings. So, if interest from savings is your only income, you won’t have to pay any taxes anyway (unless it exceeds $10,400). In fact, if your taxable income is low enough, you don’t even have a filing requirement.
And for this year, the standard deduction amount will be approximately doubled.
@LuckyGuy Technically, you do have to report interest income even if it’s less than $10, but most people get away with not counting it because the bank does not report it to the IRS if it’s less than $10.
But it also gets complicated because there’s also certain kinds of interest that’s not taxable. That’s another story…

Love_my_doggie's avatar

I need to modify @LuckyGuy‘s answer; you do need to disclose and pay tax on interest income below $10 per year. You won’t receive a tax document (Form 1099-INT), however, because the payor isn’t required to report the income or issue the form. But, compliance still holds, on all worldwide income.

Very little of my self-employment income gets reported to the IRS, but I’m nonetheless required to declare every penny and pay income and Social Security/Medicare tax on it. And, yes, I do exactly that.

2davidc8's avatar

GA, @Love_my_doggie you must be an accountant!

JLeslie's avatar

Yes. At the federal level, and also most states, although some states have no income tax of any type.

In Tennessee there is no income tax on money you “work” for, but there is on dividends and interest over a certain amount.

Love_my_doggie's avatar

@2davidc8 Yah think? :-) Yes, a CPA for the past 30 years.

Patty_Melt's avatar

Holy cow! Well, there you have it. Expert answer Fer shur.

2davidc8's avatar

Maybe we should make a little clarification here. Yes, you do have to report the interest income, but depending on circumstances, you might not have to pay taxes on it.
It should be noted that @Love_my_doggie and I are not disagreeing.

marinelife's avatar

I do. Every year. The banks are required to send a statement directly to the IRS, giving you a copy. So the taxman knows if you don’t pay.

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