Yes, money market account interest is taxable income

The interest your money market account earns counts as ordinary income on your federal tax return. The IRS treats it the same way it treats interest from a savings account or certificate of deposit — you owe income tax on it at your regular tax rate, which depends on your total income for the year.

Your bank or credit union will send you a Form 1099-INT each January showing how much interest you earned during the previous year. You report this amount on your tax return, and you pay tax on it whether you withdrew the money or left it sitting in the account. The tax is due when you file your return, typically by April 15.

State and local taxes may also apply. Some states tax interest income, while others do not. A few states exempt interest from savings and money market accounts entirely, but most treat it like any other income. Check your state's tax rules or ask a tax preparer about your specific situation.

Key Takeaways

  • Money market account interest is taxed as ordinary income at your federal tax rate, and you report it on Form 1099-INT.
  • You owe tax on the interest even if you do not withdraw it from the account during the year.
  • State and local income taxes may apply to your interest earnings, depending on where you live.
  • The tax you owe depends on your total income for the year, because interest is added to your other income to determine your tax bracket.
  • Interest rates on money market accounts are currently low enough that many people earn less than the standard deduction and owe no federal tax on the interest.

How your tax bracket affects what you owe

The amount of tax you pay on money market interest depends on your total income, not just the interest itself. If you earn $50,000 in wages and $500 in interest, the IRS adds that $500 to your $50,000 and taxes you on $50,500. Your tax rate on that extra $500 is your marginal tax rate — the rate that applies to your highest income.

For 2024, federal tax brackets range from 10 percent to 37 percent depending on your filing status and total income. If you are in the 22 percent bracket, you will owe roughly 22 cents in federal tax for every dollar of interest you earn. If you are in the 12 percent bracket, you will owe about 12 cents per dollar.

This is why the same $1,000 in interest costs one person more tax than another. A retired person living on Social Security and interest might owe little or no tax on that $1,000, while someone earning $150,000 in wages will owe tax at a much higher rate.

When you might owe no federal tax on the interest

If your total income falls below the standard deduction for your filing status, you owe no federal income tax at all — including on money market interest. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. These amounts increase slightly each year.

Many people with modest incomes and small money market balances fall into this category. If you earned $12,000 in wages and $800 in interest, your total income is $12,800 — below the $14,600 standard deduction — so you would owe no federal tax. You would still file a return to claim any refundable tax credits you are may have access to to, but the interest itself would not trigger a tax bill.

However, you may still owe state or local tax on the interest even if you owe no federal tax. Check your state's rules or speak with a tax preparer about your situation.

The difference between money market accounts and money market funds

A money market account at a bank or credit union is FDIC-insured and reports interest on Form 1099-INT. A money market mutual fund is an investment product sold through a brokerage and may report income differently — sometimes as dividends rather than interest, depending on the fund's holdings.

If you own a money market mutual fund, your brokerage will send you a Form 1099-DIV showing dividends, or a Form 1099-INT showing interest, depending on what the fund holds. The tax treatment is similar — you owe tax on the income — but the form name and the way it appears on your return may differ. Check your year-end statement from your brokerage to see which form you received.

For the purposes of this article, we are discussing money market accounts at banks and credit unions, which use Form 1099-INT and are straightforward to report.

How to report money market interest on your tax return

When you receive your Form 1099-INT in January, check it for accuracy. The form shows your name, Social Security number, the account number, and the interest amount. If any information is wrong, contact your bank immediately and ask for a corrected form.

If you file your own return using tax software, you will enter the interest amount from Box 1 of Form 1099-INT into the interest income section. Most tax software walks you through this step and automatically adds the amount to your total income. If you use a tax preparer, give them the form and they will handle the entry.

If you have multiple money market accounts, you will receive a separate 1099-INT from each institution. Add up all the interest amounts and report the total on your return. You do not need to list each account separately on your federal return, though you may need to do so for state tax purposes depending on your state's rules.

Strategies to reduce taxes on money market interest

Because money market interest rates are currently low, most people earn small amounts of interest that do not significantly increase their tax bill. However, if you have a large balance earning substantial interest, a few approaches may help.

Hold money market accounts in a tax-advantaged retirement account like a traditional IRA or 401(k) if you have one. Interest earned inside these accounts is not taxed each year — you only pay tax when you withdraw the money in retirement. This delays the tax bill and may result in a lower rate if your income is lower in retirement.

If you are in a low tax bracket, you might also consider whether a higher-yield savings account or CD ladder makes sense for your goals, since the tax treatment is the same but the interest rate may be slightly different depending on the institution and the time period.

For most people, though, the interest earned on a money market account is small enough that tax planning around it is not necessary. Focus instead on building the balance itself.

State and local taxes on money market interest

State income tax treatment of money market interest varies widely. Some states, like Florida, Texas, and Wyoming, have no state income tax at all, so you owe nothing to the state on your interest. Other states tax interest as ordinary income at rates ranging from roughly 1 percent to 13 percent, depending on the state and your income level.

A few states offer partial exemptions for interest income. For example, some states exempt interest earned on savings accounts or money market accounts below a certain threshold, or they exempt interest for residents over a certain age. Check your state's tax department website or ask a tax preparer whether your state taxes money market interest and whether any exemptions apply to you.

If you live in a city or county with a local income tax — such as New York City or certain counties in Ohio — you may owe local tax on your interest as well. This is less common than state tax but does apply in some areas.

Frequently Asked Questions

Do I have to report money market interest if it is less than $10?

Banks are required to send a Form 1099-INT only if interest is $10 or more, but you still owe tax on any interest you earned, even if it is less than $10 and you do not receive a form. If you earned interest below the reporting threshold, you should still report it on your return based on your account statements.

What if I earned interest in one year but withdrew the money in the next year?

You report the interest in the year you earned it, not the year you withdrew it. If you earned $200 in interest during 2024, you report it on your 2024 tax return even if you withdrew the money in January 2025. The Form 1099-INT you receive in January 2025 will show 2024 earnings.

Can I deduct money market account fees from the interest I report?

No. You report the full interest amount shown on Form 1099-INT. If your account charged fees, those are not deductible against the interest income on your federal return. However, some states allow deductions for investment-related fees, so check your state's rules.

Is money market interest taxed differently if I am self-employed?

The interest itself is taxed the same way — as ordinary income at your marginal tax rate. However, if you hold the money market account in a SEP-IRA or Solo 401(k) for your business, the interest is not taxed each year. Self-employed people should speak with a tax preparer about the best account structure for their situation.

Do I owe tax on money market interest if I am not a U.S. citizen?

Tax residency and citizenship are different. If you are a resident alien or U.S. citizen, you owe tax on worldwide income, including money market interest. If you are a nonresident alien, the rules are more complex and depend on your visa status and tax treaty provisions. Consult a tax professional who handles international tax situations.