Do you pay taxes on the the interest you earn on a savings account?

Question

if you have 100K saved and in a savings account earning 5.2% interest. Do you pay taxes on the income/interest?

Answer 1

Absolutely. When you file your taxes, there is a question about Interest Income. This is Interest Income.

Answer 2

Maybe Yes, Maybe No.

That's right, the correct answer in this case is (It Depends). You simply didn't give us enough information.

For instance, if your saving's account is really a QTP (Qualified Tuition Plan) or a Codovell Savings Account, or anything else that dances around the tune of Sec. 509 & 529 of the Tax Code, then you wouldn't bother including it in income to begin with until the funds would either be withdrawn from the account with no record of Qualified Education Expenses (where a penalty would apply), or when QEE's would be paid with the funds, (where the amount would be taxed normally for that year).

Now, let's keep things simple and assume that you are taking about a traditional savings account which holds $100,000 in cash and generates $5,200 in interest income for the first year. It would seem logical that you should pay taxes in this amount right? Wrong!

You should include this amount in you tax returns for income, but just because you include it, doesn't mean you'll have to pay taxes on it!

1. If nobody can claim you as a dependent, your personal exemption and standard deduction ($8,450) are greater than your income! (Translation: no tax liability).
2. If you can actually itemize on your return and go beyond the standard deduction (something not worth your time if this interest income is your only income), then you can once again owe no taxes.

However, there are exceptions to even these rules:
1. What if someone CAN claim you as a dependent? Even if they do or don't actually claim you as a dependent, if you satisfy the conditions for someone to claim you as a dependent, you can no longer apply your personal exemption, nor can you use the standard deduction! If this income represents all your income for the year, the only deduction you can take is $850! That will leave you with a tax bill of $435!
2. But it doesn't stop there! If you are under the age of 14, the kiddie tax may apply! Now, if you're not under the age of 14, i'm not going to waste your time with an hour of reading how how to calculate the tax liability. If you fall under this situation, feel free to send me an e-mail with your parent's effective tax rate for the year, and we'll be able to come up with a number.

I hope that helps answer your question, or at best, expose you to the alphabet soup that the tax code blesses accountants and lawyers with.

Answer 3

Yes. You pay tax on interest income and other income: wages, dividends, self employment earnings as it is constructively received. Constructive receipt simply means that the money or earnings are made available to you for use by you without restrictions or as the IRS states, "first date the taxpayer has the right to claim it, whether or not that claim was actually exercised."

At the beginning of 2007, if the interest you earned in this account exceeds $10, you will receive a 1099 INT reporting the amount of interest paid to you by the bank. This is the amount of interest income for which tax will be assessed.

Hope that helps.

Answer 4

Since the tax tables go up in steps of $50 of income, at 10$ you would have a 20% chance of having to pay additional tax, therefore 80% chance of no tax You would pay (if anything) according to your tax bracket. At 15% bracket that would be $7.50. $50 of additional interest would be $7.50 all the time at 15%. If you earned $10,000 interest, your taxes would go up according to your tax bracket, but that amount might move you into another bracket, so part of it could be taxed at a higher rate.

Answer 5

If your total income, including the interest, is enough to have to file and pay taxes, then yes you'd pay taxes on the interest. If that's your only income and you are not a minor, you wouldn't owe tax on it.

Answer 6

Regular savings, yes. If it is a tax exempt account of some type, no. Check with whoever the account is with and ask its status.

Answer 7

Only if you keep it, LOL!

It's income, isn't it? Of course it is taxable.

BTW, 5.2% interest on $100K is APPALLING unless you are 95-years old and cannot afford any risk whatsoever!

Answer 8

You betcha! File Schedule B with your tax return to list the interest.

Answer 9

Of course. Its a capital gain...and why are sitting on 100k in a savings account?? although that is a good APY, jesus, buy annuties, IRA, i take it you dont trust stocks but and thats ok but mutual funds are very reliable and yield on avg. 8%...buy there are those that top that...also..you can out your returns into
off- hore account (yes there are legit ones and it is legal) practicing tax avoidance ( not evasion)...

Answer 10

yes