Paying Tax On CD Interest Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure

Advertiser Disclosure

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

How We Make Money

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Zach Gibson /Getty Images March 28, 2022 Karen Bennett is a consumer banking reporter at Bankrate. She uses her finance writing background to help readers learn more about savings and checking accounts, CDs, and other financial matters. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content. Bankrate logo

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo

The Bankrate promise

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo

Editorial integrity

Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Here is a list of our .

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Certificates of deposit provide a safe place to earn a fixed return on your money, but any interest earned totaling $10 or more is generally taxable and must be reported to the IRS. Paying tax on CD interest puts a dent in your overall return. So before investing, knowing how CD interest is taxed and what the IRS counts as income can help you save money.

How CD interest is taxed

Interest earnings

The IRS treats interest you earn on a as income, whether you receive the money in cash or reinvest it in a new CD. (The same treatment applies to interest credited to a CD that allows you to withdraw funds early without penalty.) The interest is taxable, the IRS says, in the year it is paid. If you’ve earned more than $10 in interest in a year, the that issued the CD will typically send you a 1099-INT statement. In box 1, you’ll find the details of how much interest you earned that year from the CD. For example, if you purchase a maturing in the same year it was purchased and earn $10 or more, you’ll have to pay tax on it for that year. For a CD that earns interest over more than one year, you’ll pay taxes each year on the total interest accrued that year. Even if you don’t receive a 1099-INT, you must report interest earnings of $10 or more. The caveat is if you put your CD in a tax-deferred individual retirement account (IRA) or 401(k). As long as money placed in a traditional IRA is below the annual contribution limit ($6,000 for 2021 and 2022, or $7,000 if you’re 50 or older), interest you earn in a given tax year may be tax deductible. In that case, no 1099-INT is issued until distributions are taken from the retirement account. Keep in mind that the tax rate on CD interest depends on the dollar amount of your gain and what income tax bracket you fall under.

CDs with terms longer than a year

Any CD with a term longer than one year will earn interest in more than one calendar year — and you’ll need to pay taxes every year on the interest accrued in that particular year. The rule applies even though you’re not able to cash in most CDs until their maturity date. For example, if you opened a with $10,000 on Jan. 1, 2022, that pays 2 percent APY, the $200 in interest you earn in 2022 will be taxable in that year. Interest earned in each of the remaining four years qualifies as income and is taxable in the year it’s earned.

CD maturity

The end of a CD’s term is often the only time you can withdraw the principal and interest without paying the bank an early withdrawal penalty (with the exception of a ). When a CD matures, your options include withdrawing the money, transferring it to a savings or checking account, or rolling it into another CD. Regardless of what you do with the money, you have to pay tax on any CD interest the year it was earned.

Does cashing in a CD count as income

You earn interest on the principal amount of your CD over time until you can cash it out at maturity. But only the amount that exceeds your initial investment usually counts as income. Let’s say you purchase a for $10,000 that pays a 1.1 percent APY. When your CD matures, you will have earned about $110. The issuing bank will give you a total of $10,110 (your principal investment plus interest earned) at maturity. Yet only the $110 in interest qualifies as income, and that’s the amount you’ll see in box 1 on the 1099-INT received from the bank at tax time.

How early withdrawal penalties affect taxes owed

In some cases, early withdrawal penalties may reduce your tax obligation. Most traditional CDs charge penalties for taking out money before the maturity date. If you pay an early withdrawal penalty, you can deduct the full amount from your taxes, even if it’s an amount that’s greater than the interest earned. So, if you earned $50 in interest, but you paid an early withdrawal penalty of $100, the full $100 can be deducted on taxes. Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution and clearly labeled “early withdrawal penalty.”

Bottom line

Generally, CD interest earnings of $10 or more must be reported to the IRS. But CD taxes aren’t always clear-cut. If you’re unsure if you’ve received interest earnings, or if you have other questions about CD tax-related issues, consult a tax professional. SHARE: Karen Bennett is a consumer banking reporter at Bankrate. She uses her finance writing background to help readers learn more about savings and checking accounts, CDs, and other financial matters. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content.

Related Articles