Ramses Delgado, Banking Moderator
@ramses_delgado1
Yes, you are required to pay taxes on the interest earned from Certificates of Deposit (CDs). The interest earned on CDs is considered ordinary income and is subject to federal income tax at your individual tax rate. The tax rate can range from 10% to 37%, depending on your taxable income and filing status.Here are some key points related to taxes on CD interest:
- Form 1099-INT: If you earn more than $10 in interest on a CD in a given tax year, the bank or credit union that issued the CD will provide you with a Form 1099-INT. This form reports the interest income you earned.
- Tax Reporting: It is your responsibility to report the CD interest income on your tax return, even if the amount is less than $10 or if you choose to reinvest the interest.
- Ways to Reduce Taxes on CD Interest: Consider opening a CD within an Individual Retirement Account (IRA) to defer taxes, or choose a longer-term CD that matures in a lower-income year.
- Consult a Tax Professional: Tax laws can be complex, and individual circumstances vary. If you have specific questions or want personalized advice, it's advisable to consult a tax professional for guidance.
You can check the best CDs available for you to make sure that whatever decision you go for really fits your goals.
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