What Is the Minimum Interest to Report to IRS?
Earning interest on your savings is a great way to put your cash reserves to work for you. However, the Internal Revenue Service wants a part of the profits because unless it qualifies for exemptions, it’s subject to income taxes.
To make sure you’re in the good books with the IRS, make sure you know the thresholds for reporting interest income when you’re filing your tax return.
If you earn more than $10 in interest from any person or entity, you should receive a Form 1099-INT that specifies the exact amount you received in bank interest for your tax return. Technically, there is no minimum reportable income: any interest you earn must be reported on your income tax return. So, even if you don’t receive a Form 1099-INT, you are still legally required to report all interest on your taxes. Any amount of tax-exempt interest still needs to be reported on your income tax return because it could impact your tax return.
You might not have to report interest earned if you don’t have enough income required to file a tax return. Usually, if you have not made the minimum income for the year, you don’t have to file taxes. There are a few exceptions like if you owe an early withdrawal penalty for an IRA or any other special taxes or if you earned more than $400 in self-employment income.
This article will also discuss:
Does Interest Count as Income?
Most interest income is taxable as ordinary income on your federal return and is subject to ordinary income tax rates with a few exceptions.
Generally, most interest is considered taxable at the time you receive it or can withdraw it.
Interest taxed at the same federal tax rate as your earned income, include:
- Interest on deposit accounts, such as checking and savings accounts
- Interest on the value of gifts given for opening an account
- Distributions are commonly known as “dividends” on deposit or share accounts in credit unions, cooperative banks, and other banking associations
- Interest on loans you make to others
- Interest on certificates of deposit
- Interest on U.S. obligations (except municipal bonds; U.S. Treasury bonds are federally taxable but not at the state level)
- Interest on insurance dividends or increased value in prepaid insurance premiums you withdraw
- Interest on an annuity contract
- Original issue discount amounts on long-term debt instruments
- Interest on income tax refunds
Distributions from money market funds are typically reported as dividends, not interest.
Interest that may be exempt from federal income tax, include:
- Municipal bond interest (may also be exempt from state tax if issued in your state of residence)
- Private activity bonds (under the regular tax system, but may be taxable under the alternative minimum tax)
- Exempt-interest dividends from a mutual fund or other regulated investment company
What Is Deferred Interest Income?
The interest of any fixed income instruments that are held to maturity can be reported when it is paid upon maturity. With some U.S. savings bonds and in certain other cases, you may wish to use the accrual method, where you report the interest as it accrues, even if you do not receive it, rather than using the more common cash method.
Original issue discounts amounts should be reported as they accrue.
You do not need to report interest earned on tax-deferred accounts, such as Traditional IRAs or 401(k)s until the withdrawals of earnings.