Remember, the percentage of tax you owe depends on everything on your tax return, such as income level, deductions, credits, exemptions and number of dependents. If your tax rate is 25 percent, you’ll owe $250 in taxes from that income. Say you earned $1,000 in interest on a CD (certificate of deposit). So if your normal tax bracket is 25 percent, you’ll also pay 25 percent of interest in taxes.
In most cases, your tax rate on earned interest income is the same rate as the rest of your income. So, how much tax do I have to pay on interest income? In short, taxable interest income is simply the money you earn on investments for which you’re required to pay taxes. Just like the income you earn from a paycheck, Uncle Sam also requires a piece of the income you earn from interest.Įven when it seems like the interest you earned is a very small amount, it’s still income-so you have to pay taxes on it. If you earn interest income on your investments, in most cases you must pay tax on that income.
