1. What is Taxable Interest?

Taxable interest is the amount of interest earned on savings accounts that must be reported to the IRS as income. For 2021 tax year, all interest earned from high-yield savings accounts is generally taxable.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( P \) — Principal amount (initial deposit)
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of compounding periods per year
• \( t \) — Time the money is invested for (in years)

Explanation: The formula calculates the total amount earned through compound interest, then subtracts the principal to determine just the interest portion.

3. Importance for IRS Reporting

Details: For the 2021 tax year, banks typically report interest earnings on Form 1099-INT when the amount exceeds $10. This calculator helps estimate what you'll need to report.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as decimal), compounding frequency (usually 12 for monthly), and time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is all savings account interest taxable?
A: Generally yes, unless it's from a tax-advantaged account like an IRA. This calculator is for regular taxable accounts.

Q2: How do I convert APR to decimal?
A: Divide the percentage by 100. For example, 2.5% becomes 0.025.

Q3: What's the typical compounding frequency?
A: Most high-yield savings accounts compound interest daily (n=365) or monthly (n=12).

Q4: Does this calculator account for taxes withheld?
A: No, it calculates gross taxable interest before any withholding.

Q5: Can I use this for multiple deposits?
A: This calculates for a single principal amount. For multiple deposits, calculate each separately or use the average.