Earning interest is a great way to put your cash reserves to work for you. However, the Internal Revenue Service wants a piece of the profits because unless the interest qualifies for an exception, it’s subject to income taxes. Knowing the thresholds for not only what interest income you must report, but also the income thresholds for filing a tax return, ensures you stay off the IRS’s naughty list.
You must report all interest income on your taxes if you are required to file a return for the year.
Reporting Interest on Taxes
Technically, there is no minimum reportable income: any interest you earn must be reported on your income tax return. If you earn more than $10 in interest from any person or entity, you should receive a Form 1099-INT that specifies the exact amount that you received of bank interest for the tax return. However, even if you don’t receive a Form 1099-INT, you are still legally required to report all interest on your taxes. For nontaxable interest of any amount, you still need to report it on your income tax return because it could affect your tax return. For example, your nontaxable income can affect how much of your Social Security benefits count as taxable income.
Minimum Amount to File Taxes
Even if you earned interest during the year, you might not have to report it if you don’t have enough total income to be required to file a tax return. If you don’t have the minimum amount of income for the year, you generally don’t have to file a tax return, though there are a few exceptions – for example, if you owe an early withdrawal penalty for an IRA or any other special taxes or if you had more than $400 of self-employment income.
2018 Minimum Filing Thresholds
The Tax Cuts and Jobs Act eliminated personal exemptions, so in 2018, the tax filing threshold is equal to the standard deduction for your filing status. That means that if you’re single, your threshold is $12,000, heads of household have an $18,000 threshold and married couples filing jointly have a $24,000 threshold. For example, if you’re single and you have $500 of interest and $5,000 of other income, your total income of $5,500 doesn’t exceed the threshold for filing a tax return, so no income tax return needs to be filed.
2017 Tax Filing Thresholds
In 2017, the thresholds for filing a tax return were lower. For singles, the filing threshold was $10,400. For heads of household, it was higher at $13,400. If you file jointly, the income threshold for 2017 taxes is $20,800.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."