Do I Have To Pay Taxes On My Checking Account?

Taxes On My Checking Account

A checking account is a type of deposit account offered by a bank or other financial institutes. Usually, a checking account allows you to deposit and withdraw money quickly therefore this type of account is used for everyday expenses. A checking account is also known as demand accounts or transactional accounts.

The Internal Revenue Service (IRS) of the USA has the authority to decide, for what kind of interest you have to pay taxes. If you have a checking account and wondering do you have to pay taxes then the answer is “Yes”. According to the IRS, you have to pay taxes for interest which is earned from interest-bearing checking accounts, saving accounts, money market accounts, etc.

Definition Of Checking Account

A checking account is a deposit account and it includes commercial or business accounts, student accounts, and joint accounts, as well as other accounts that offer similar facilities. If you have a business then you can have a commercial checking account and it can only be used by businesses and it is also the property of the business. There are many banks that offer special checking account for college students that will remain free of charge until they graduate. For marital partners, a joint checking account is the best option. In a joint account, both the account holder can write checks on the account.

List Of Best Checking Accounts in the USA

1. Heritage Bank eCentive checking account, 1.02% APY

2. Navy Federal Credit Union Flagship Checking, up to 0.45%

3. nbkc bank Everything Account, 0.25% APY

4. Ally Interest Checking account, 0.10% to 0.25% APY

5. Radius Bank Rewards Checking, 0.10% to 0.15% APY

6. TIAA Bank Yield Pledge Checking, 0.10% APY

7. Capital One 360 Checking, 0.10% APY

8. Chase Total Checking and Chase College Checking 0.01% APY

9. Chase Premier Plus & Sapphire Checking

10. Discover Cashback Debit, non-interest-bearing checking account

Things To Consider When Opening A Checking Account

People open checking accounts for convenient access to their money because a checking account makes paying bills a breeze. However, many banks charge various fees for checking accounts. So, before you open a checking account you should consider these:

1. No or low fees

2. No minimum balance requirement

3. Free access to ATMs

4. Online and mobile access 

What Types Of Interest Income Is Taxable?

Below are the types of interest income that are taxable. So you have to pay taxes if the interest is earned on – 

1. Bank accounts – checking account, saving account

2. Money market accounts

3. Share accounts with credit unions

4. Certificates of deposit

5. Corporate bonds

6. Deposited insurance dividends

7. Treasury bills, notes, and bonds

8. Savings bonds

9. Any interest paid to you by a business that’s $600 or more

If you have any of the above accounts then you’ll have to account for any interest earned on your taxes. However, there are some types of interest income that you can exclude from your taxes. They are:

1. Interest redeemed from Series EE and Series I bonds issued after 1989 if you’re using the money to pay for qualified higher education expenses

2. Interest on certain municipal bonds

3. Interest on insurance dividends left on deposit with the U.S. Department of Veterans Affairs

FAQs About Checking Account

1. Why People Use Checking Accounts?

Many people use checking accounts because of their quick accessibility and safety. This is a versatile account and it allows the account holder to pay bills, make purchases, and receive deposits conveniently.

2. Is It Safe To Open A Bank Account Online?

Yes, it is completely safe to open a bank account online as long as the bank is encrypting your data. So when you are opening a bank account online, make sure you choose an HTTPS bank web address.

3. Can Checking Accounts Earn Interest?

Traditionally, checking accounts don’t pay interest but nowadays many banks and credit unions offer a high-yield checking account. These types of checking accounts can earn interest at least once per year. Though, there might be some requirements that you have to fulfill if you want to become eligible for the interest. For example, you might have to maintain a minimum or maximum balance or might have to use the debit card a certain number of times per month.

4. How Is Interest Taxed On A Checking Account?

In a checking account, your interest will be taxed t ordinary income tax rates and that could range from 10 percent to 37 percent.

5. How Many Checking Accounts Can I Have?

There are no limits on the number of checking accounts you can have. Though, practically it is ok to have one account per person and three accounts in a household.

Last Updated on May 29, 2021 by Musa D

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