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What is the Minimum Amount of Interest Required to Report?

| MoneyRates.com Senior Financial Analyst, CFA
min read

trying-to-understand-womanIt's tax time. You have your tax forms in front of you, including 1099-INT forms reporting the interest you earned from bank and investment accounts.

Looking at those forms, it occurs to you that some of the amounts on them are very small. Or maybe you have an account or two for which you did not receive a 1099-INT.

Do you really have to declare tiny amounts of interest or chase down missing 1099s?

The short answer is yes. If you meet the requirements for filing a tax return, you should declare any interest earned on your tax return - no matter how small, even if you didn't receive a Form 1099-INT.

The filing requirements are discussed below, but that doesn't necessarily answer the underlying question: Is it worth bothering with all of this?

Earn More Interest

Research by MoneyRates.com shows that most bank customers are getting a small fraction of the interest they could be earning on their deposits.

Even in a falling rate environment, it is possible for many savers to earn more interest.

So beyond getting your taxes done, the next financial move you should make is to see why some of those interest amounts are so small and find ways to do better this year.

Investing four minutes of your time to shop for rates today could yield more meaningful earnings to report next year and some satisfaction, knowing you took proactive steps instead of settling for a minimal return on your deposits.

Who Is Required to File a Tax Return?

The following rules cover most taxpayers, assuming you cannot be claimed as a dependent on someone else's return:

If your filing status is…And at the end of 2019 you were…Then file a return if your gross income was at least…
SingleUnder 65$12,200
Single65 or older$13,850
Head of householdUnder 65$18,350
Head of household65 or older$20,000
Married filing jointlyUnder 65 (both spouses)$24,400
Married filing jointly65 or older (one spouse)$25,700
Married filing jointly65 or older (both spouses)$27,000
Married filing separatelyAny age$5
Qualifying widow(er)Under 65$24,400
Qualifying widow(er)65 or older$25,700

However, if you are self-employed, the reporting threshold is much lower. You have to file a return if you had at least $400 in self-employment income.

Note that, even if you do not meet any of the above filing thresholds, it may be worthwhile to file a return:

  • So you can collect any refunds owed to you on taxes withheld from your paycheck
  • So you can collect any refunds owed to you on estimated taxes you paid throughout the year
  • In case you qualify for a tax credit

If you do file a return, do you have to report every bit of interest income you earn on savings accounts, certificates of deposits, checking accounts and bonds, no matter how small?

The answer is yes. The tricky part is that financial institutions are only required to send you a 1099-INT if you had at least $10 in interest income from that institution.

If you did not get a 1099-INT, you should be able to find out how much interest your account earned by checking your statements from the past year or by contacting your financial institution.

Taxable Interest vs. Non-taxable Interest

Not all interest is subject to the same taxes.

Interest payments on U.S. Treasury securities are subject to federal taxes, but they're exempt from state and local income taxes.

Municipal bond interest is generally exempt from income taxes in the state from which the bond was issued. Municipal bonds are also often, but not always, exempt from federal income taxes.

Normally, the 1099-INT form you get from a financial institution will show the category into which your interest falls and where it should be reported on your federal tax return.

How to Earn More Interest Next Year

If it seems like a nuisance to be reporting tiny amounts of interest on your tax return, perhaps the problem is that you're not earning as much interest as you could be.

Here are some ways you can fix that:

  1. Shop around for better rates

    The bad news is that interest rates have been declining lately, so the interest on your savings accounts and other deposits could be even less next tax year.

    The good news is that most bank customers can raise their rates even when rates generally are dropping. The best savings accounts pay several times the industry average rate, so some simple shopping around could earn you more interest.

  2. Beware of savings account fees

    In a time of low interest rates, you need to be especially cautious about savings account fees. Not all savings accounts charge a monthly fee just for having the account; but when they do, those fees could easily wipe out any interest you earn. Look for a savings account with no monthly fee.

  3. Put some of your savings into CDs

    Certificates of deposit generally earn more than savings accounts; and the longer the term you choose for your CD, the more you can earn.

    If you don't expect to tap into your savings in the near future, consider putting at least some of that money into a CD. That could help you earn more interest next year.

Of course, earning more interest could mean paying more taxes. Still, the bottom line is that your increased earnings should exceed your increased taxes, so that would be a nice problem to have.

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