How much tax do you need to pay on compound interest earned on your account?


Quick Answer

The tax rate on compound interest an account earns is the same as the account holder's marginal tax rate, according to Deposits Online. The marginal tax rate is equal to the rate of his highest income tax bracket.

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Full Answer

Banks usually issue a 1099-INT form at the end of the year that lists the amount of interest earned on an account, states Deposits Online. The account holder can also find the interest on his bank statement or by calling the bank. He should report the interest on a 1040A tax form or on a 1040EZ form if he earned less than $1,500 in interest during the year.

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