How is a savings account taxed?

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March 2017
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A savings account is taxed by the IRS on form 1099-INT. Your financial institution that holds your savings account mails these forms to their customers in late January for the previous year's interest. You are only taxed on any interest earned in the account over a minimum of $10, although the IRS requires you to report all taxable interest in your income.

Keep in mind that some banks offer cash incentives to open a new savings account, those bonuses are also taxable and need to be reported once a year as well.

This only applies to traditional savings account or an online savings account which would generate taxable interest income. Not to be confused with an IRA savings account which are tax deferred and you pay taxes when the funds are withdrawn. IRAs have contribution limits, but with a traditional savings account, there are no limitations on contributions.

If your taxes are not paid on the interest earned in your savings account, the IRS will enforce penalties and fees.

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