An individually owned CD is taxed as ordinary income tax rates. Banks that issue CDs are required to report interest in excess of $10 top the CD owner and the Internal Revenue Service.
- Those CD's with terms of a year or less, is recognized as taxable income in the year that the CD matures.
- A CD with a term greater than one year—is subject to tax as interest accrues.
- If you own a long-term CD, the interest is treated as taxable income in the year in which you are legally entitled to it (You can close the CD before Maturity).
- By example, the owner of a CD with a four-year term will owe tax in each of the years that the CD is held.
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