We often overlook some of our sources of income, especially if they seem insignificant compared to other sources, such as a primary job or business.
One source of income we often overlook is interest from our bank accounts or brokerage accounts held at various financial institutions.
Robert asks, “Hey Mike, hope you’re able to answer this for me. I didn’t receive any statements for the interest I received from my bank account in 2018. Is that because I don’t have to report it? This got me wondering if interest is even taxable at all. Thanks in advance.”
Robert, you likely did not receive an interest statement from your bank because it was less than $10. If you receive less than $10 in interest in a year from a single account at a financial institution, the financial institution is not required to report the interest to you in a tax statement.
The tax statement you would be looking for is called a 1099-INT. Again, in this case you would not receive one. However, just because the bank does not have to report the interest to you does not mean you do not have to report it on your tax return.
Unless the interest is from a tax-exempt source (e.g. municipal bond interest or tax-deferred or tax-free interest in an IRA), you must report and pay tax on the interest on your tax return.
It is taxable as ordinary income at ordinary income tax rates.
If you did not receive a tax statement for your interest and would still like to stay compliant, the best way to make sure your interest is accurate is to compile all monthly statements from each bank account and add them up separately for each account.
Round to the nearest dollar each account and report the interest on your tax return. If your combined interest is greater than $1,500 you must report it on Schedule B of Form 1040. If less than $1,500, you may report it on the applicable line of Form 1040 alone and not on Schedule B.
I hope this overview was helpful, Robert, and thank you for writing in.
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This article is not to be considered tax, financial, or legal advice. For help regarding your specific situation, please consult your local advisor.