That interest you earn doesn’t come free.
Earning interest on your savings sure is nice—but it’s not all yours to keep. As with most earnings, Uncle Sam will want a cut. Depending on how much income you rake in each year—and how much interest your savings account garnered you, that cut could be hefty.
And as your earnings rise, so do the taxes you’ll need to pay on them. Has your high-yield savings account been racking up interest this year? Here’s what you can expect to pay in taxes for it., for that matter—is subject to state and federal income taxes. This means there’s no hard-and-fast answer for what you’ll pay on your earnings. Instead, it depends on where you’re located and what tax bracket you fall into.range from 10% for those on the lower end of the income scale up to 37.
What’s more, savings account and CD interest contrast with investment income, which is often taxed at lower rates. For instance,The upshot is that for many taxpayers, “the amount of taxable interest on savings accounts is small,” says Rob Burnette, a tax preparer at Outlook Financial Center in Troy, Ohio. But that’s not always the case. “For people that are highly risk-averse—many are older—then they will have a significant portion of their assets in savings accounts.
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