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Is There Tax on a Savings Account?

October 15, 2021
in Wealth Management
0
Is There Tax on a Savings Account?

Interest from a savings account is taxed at your earned income tax rate for the year. This means that the tax amount you owe on interest for a given year will depend on your total taxable income, the current tax bracket you fall into, and how much you earned in interest.

Here are the marginal tax brackets for the upcoming 2021 income year:

 

Rate Single  Married Filing Jointly  Head of Household
10% Up to $9,950 Up to $19,900 Up to $14,200
12% $9,951 to $40,525 $19,901 to $81,050 $14,201 to $54,200
22% $40,526 to $86,375 $81,051 to $172,750 $54,201 to $86,350
24% $86,376 to $164,925 $172,751 to $329,850 $86,351 to $164,900
32% $164,926 to $209,425 $329,851 to $418,850 $164,901 to $209,400
35% $209,426 to $523,600 $418,851 to $628,300 $209,401 to $523,600
37% $523,601 or more $628,301 or more $523,601 or more

Source: Internal Revenue Service

To illustrate, let’s say as a single individual, your total taxable income in 2021 is $60,000. That puts you in the 22% tax bracket, meaning that in addition to paying 22% on your income, you will also pay 22% of your earned interest in taxes. Say you earned $100 in interest on a savings account that year. If your tax rate is 22%, you’ll owe $22 in taxes from that income.

Keep in mind that the variables that determine your tax bracket can change from year to year. If your normal tax bracket changes, the amount of tax you pay on interest income changes along with it.

Source
Is There Tax on a Savings Account? is written by Katana Dumont for www.chime.com

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