Taxable and Non-taxable Interest Income

Do you know the difference? Well here are some examples that can help you.

The following are examples of taxable interest income:

• Interest from a bank, savings and loan, credit unions, cooperative banks and domestic building and loan associations.



• U. S. obligations (e.g. Treasury bills, notes and bonds). Interest from U.S. obligations is subject to federal income tax but is exempt from all state and local income taxes.



• Gift for opening account. For deposits of less than $5,000, gifts or servivces valued at more than $10 must be reported interest. For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest.



• Distributive share of interest from partnerships or S corporations. This interest is reported on Schedule K-1 (Form 1065 or Form 1120S).



• Any interest income reported on Form 1099-INT.

The following are examples of non-taxable interest income:

• State and local government obligations. Tax-exempt interest is still required to be reported on an individual's tax return.


• Interest received on the redemption of qualified U.S. saving bonds if used to pay for higher educational expenses during the same year.

Additional resources:

1099-INT Interest Income

Income Interest

Savings Bonds

Education Savings Bond Exclusion