About banks and tax forms

In the United States, if you have income, you need to think about taxes — and income from banks is no exception.

When we put money into a Checking account, there is usually some kind of opening bonus; when money sits in a Saving Account, it earns interest every year. Both of these are taxable. Banks generally mail a 1099-INT tax form to you and the IRS between January and February each year, and you need to file based on the amounts shown on it. If you did not receive it, you can check the bank’s tax document page. If you still can’t find it, it is best to contact the bank as soon as possible to get the form.

Generally speaking, banks are only required to issue a 1099-INT once this income exceeds $10. If your Savings account only has a small balance, the interest is very likely under $10. Although this income is technically taxable, I personally think it is probably fine if you do not report it.

In addition, some banks offer referral bonuses. If you receive these bonuses from a bank, they are also taxable, and this income will be reported on a 1099-MISC tax form.

Some banks also offer investing services for stocks. We have already covered the tax forms for that part in the stock investing section, so you can read the featured article below:

Opening bonuses

Many banks now offer opening bonuses for checking accounts or savings accounts, and this income is taxable. The bank will issue a 1099-INT tax form based on the amount of the opening bonus to record this income. For example, the form below was received by a reader the second year after getting the Capital One Checking $400 opening bonus. The extra $0.03 here is because U.S. checking accounts usually also earn a tiny amount of interest, generally at 0.01% APY, so this should be interest income.

Please note that if, when opening the account, you provided a W8 (or the bank treated you as a US Resident by default), you may see an amount in federal withheld (box 4) with a number in it. This means that federal tax has already been withheld from part of the opening bonus. When you file your taxes, you need to include this amount so that your actual tax liability can be recalculated based on your tax rate.

In addition, some banks pay opening bonuses in the form of miles or points. For example, Citi checking previously had an offer that gave AA miles for opening an account. Even though the reward is miles rather than cash, this bonus is still taxable. In general, the bank may convert the miles you receive into a cash value, and how that conversion is done is entirely up to the bank. There was a case where a user’s AA miles were valued at 3c/p (I can’t remember the exact figure), and they received a very large 1099-INT. So I do not really recommend applying for these kinds of accounts; cash opening bonuses are still the easiest.

Interest

Many investment and savings accounts in the U.S. generate interest, such as CDs, Savings accounts, bonds, money market accounts, and so on. These accounts all issue a 1099-INT; in essence, there is no difference. When filing taxes, you only need to add up these numbers.

Likewise, some unusual accounts offer mileage rewards as interest, and the bank also decides how those miles are converted into cash. If the rate is 1c/p, that is a win; if it is 2c/p, it is pretty poor value.

How to report 1099-INT

Resident filing

When filing, just report it as interest income. Add up all 1099-INT interest income and enter it on 2b Taxable interest. Since Savings accounts usually pay interest once a month, you just report the total interest you received for the entire year.

If box 4 on the 1099-INT already shows federal tax withheld, then include it in the Federal income tax withheld section, b Form(s) 1099.

Depending on your income, tax rates range from 10% to 37%. The 2022 income tax brackets are shown below. You can check which bracket you fall into to estimate how much interest tax you will need to pay.

Nonresident filing

Note that for nonresidents (for example, students who have not been in the U.S. for 5 years yet), there is no interest tax. If your 1099-INT has Federal Withhold, you can get that amount back by filing your tax return. Whether or not there is a withhold, you still need to file 1040NR; just enter the applicable Tax Treaty Article on the form.

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