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Taxable Interest Income

Generally speaking, you have to pay taxes on any interest income you receive, including interest on bank accounts, deposited insurance dividends, and money market accuracy certificates. Your interest income will be reported on Form 1099-INT [Interest Income], which you must use to complete your tax return.

There are several exceptions of course. You do not have to report interest on Series EE and Series I U.S. Savings bonds until you redeem or dispose of them or until they mature. Also, you can exclude interest from these bonds if you pay qualified higher educational expenses during the year.

Interest on municipal bonds is nontaxable at the federal level, but you may have to pay state taxes on it.

If your 1099-INT labels certain income “Income not reported to the IRS” or “Details of 1099 tax exempt interest,” that interest is not taxable.