When Do I Claim Money Market Interest on My Tax Return?

by Michael Keenan
Many banks offer both money market mutual funds and money market deposit accounts.

When people discuss money market accounts, they often confuse money market deposit accounts, which are interest-bearing savings accounts, with money market mutual funds, which invest in short-term notes. Your interest payments are taxed in the same year regardless of whether you have a money market deposit account or a money market mutual fund.

Report in Year Earned

The IRS requires that you report the interest on your money market account in the year that you earn it, regardless of whether or not you take the money out of the account. If you have a money market deposit account, the income counts as interest income, even if you have the account at a credit union and the payments are called dividends. If you have a money market mutual fund, the payments count as dividend income, but are still reported as taxable income in the year you earn them.

Form 1099-INT

If you earned $10 or more in interest on your money market account, your bank should send you a From 1099-INT at the end of the year that shows you how much you earned. If you earned less, your bank might still send you one, but it isn't obligated to do so. However, you're still responsible for including the interest you earned on your money market account when you file your taxes even if you don't get a Form 1099-INT.

Tax Reporting

When you file your taxes, you can use Form 1040, Form 1040A or Form 1040EZ as long as your interest income is less than $1,500 and your dividend income is below $1,500. But, if either totals more than $1,500, you must use Form 1040 or 1040A and attach Schedule B. Schedule B just lists each source of your dividend and interest income so the IRS can make sure you're reporting all of the interest you earned.

Retirement Plans

If you hold some or all of your qualified retirement plan funds in a money market account, you don't pay any taxes on the interest until you take withdrawals because they're all tax-sheltered. Qualified plans include 401(k)s, 403(b)s and individual retirement accounts. If you have a Roth plan or IRA, you get the interest out tax-free if the account has been open for at least five tax years and you're 59 1/2 years old when you take the distributions.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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