What qualifies as taxable interest income?

Taxable interest income includes any interest that is earned from various sources, which effectively encompasses interest accrued from savings accounts and bonds. When an individual deposits money in a savings account, the financial institution typically pays interest on that balance, which is recognized as income for tax purposes. Similarly, bonds yield interest payments that must also be reported as income.

This recognition of earned interest is fundamental to tax law; it reflects the idea that individuals should report income that they have received from their invested capital. The IRS requires taxpayers to report such interest income on their tax returns, and this is documented through forms like the 1099-INT provided by banks and other financial institutions.

In contrast, gifts from relatives do not qualify as taxable income because they are not earned through investment or as a return on capital. Moreover, investment income not declared fails to meet the criteria for taxable income until reported. Finally, while dividends from stock investments represent a form of income, they are classified separately from interest income and are subject to different tax treatments. Therefore, interest earned from savings accounts and bonds distinctly qualifies as taxable interest income.