Tax Rules for Interest Income

Taxable interest income is any type of interest you got that was credited to an account and can be withdrawn without penalty during the year it was accessible. Some interest you get may be tax-free.

Taxable interest is reported on Forms 1099-INT or 1099-OID, and you must include all taxable and tax-exempt interest on your tax return even if you did not get the forms.

The following are instances of taxable interest income.

Interest on bank accounts, money market accounts, certificates of deposit, corporate bonds, and deposited dividends, including distributions, is taxable. This comprises distributions from deposit or share accounts, credit unions, domestic building and lending organizations, and mutual savings banks.

Treasury banknotes, notes, and bonds are exempt from all state and local taxes.

Savings bond interest includes annual interest, but interest on Series EE and Series I U.S. Savings bonds are normally not required to be disclosed until they are redeemed, disposed of, or mature. If you pay qualified higher education expenses during the year, the interest on these bonds may be deducted from your income. The interest on municipal bonds is not taxable. If the terms “Income not reported to IRS” or “Details of 1099 tax-exempt interest” appear on your 1099-INT, then the interest is not taxable.

If other business interest exceeds $600, it should be reported on Form 1099-INT. This includes interest on damages or delayed death payments.

If the interest is less than $10, the credit union may not issue a form detailing it. However, you are still required to declare all income. The IRS enables rounding to full figures. If your interest income is 49 cents, you can round it to zero and not pay taxes on it.

This entry was posted on Sunday, April 6th, 2025 at 8:39 pm and is filed under Deductions, Income. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.