Do you pay taxes on the interest earned on a 12-month CD, that spans two years, i.e., purchased in March 2023 and matures in March 2024?

[JulieS]

Yes, the interest on a CD is taxable, but when you report it depends on whether it is a short-term CD, or a long-term CD.

For CD terms of one year or less, you will have to pay taxes on interest when it's received. That means if you start your 12 month CD in 2023, the interest is reported when it matures in 2024. 

For CD terms longer than one year, you will have to pay taxes on interest earned each tax year during the CD term. 

In either case, your bank, or broker will let you know how much to report by issuing a 1099-INT for the CD interest. 

[jrnrph]

I had a 10 month CD in 2023, which matured Feb. 2024, however, I did receive a 1099-INT from my bank.  Must I report this on my 2023 taxes?

[JulieS]

Yes, if you receive a 1099-INT from your bank reporting the interest for 2023, you should include it on your 2023 tax return. 

[Juancar]

Hi. I have several CDs in a foreign institution in Spain. They all started in January 2024 and they all spanned into 2025 (January 2025 and July 2025). Most of the CDs had a maturity of 12 months, but a couple of them have a maturity of 18 months. They all only pay the interests at their maturity. I have checked with the bank and said I will not receive the equivalent of a 1099-INT until next year because in the eyes of the Spanish legislation that income belongs to the 2025 fiscal year.

I have been asking some people and they are all giving me different answers. I have read some parts of publication 550 and I am still confused.

When do I need to report that money here in the US? Is it the same rule here in the US and report all income in 2026? Is there a difference if the CD is 12 months or 18 months?

Thank you in advance for your help.

[LeticiaF1]

Interest is reported on the year you receive it or that it is credited to your account.  Once, you can withdraw it with no penalties. If the accounts mature in 2025, then you will need to report the income in 2025.  

IRS Topic no. 403, Interest received

@Juancar 

[Juancar]

Thank you LeticiaF1 for your reply.

Yes, I agree that interest from a CD is taxable income, but see, here is the confusion. Reading Pub 550, on page  7 it says:

Certificates of deposit and other deferred interest accounts.

If you buy a certificate of deposit or open a deferred interest account, interest may be paid at fixed intervals of 1 year or less during the term of the account. You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity.

If interest is deferred for more than 1 year, see Original Issue Discount (OID), later.

My interpretation is, for the CDs that last 12 months and pay interests at maturity, then I will report them in 2026. However, notice that last sentence underlined. When looking farther down in Pub 550, on page 20 it says:

Certificates of Deposit (CDs)

A CD is a debt instrument.

If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.

The way I interpret that info on pg 20 is that I should report interest accrued, even if it has not been paid.

That is what really confuses me.

How do you interpret that part? Again, I will only receive the interest at maturity and will not receive any equivalent of a 1099 INT until next year.

Thank you

[RobertB4444]

In your case you have been told that you do not receive any interest until maturity so you are absolutely correct in waiting to include it all in your 2025 tax return.

However, if you want to include the portion that was earned in 2024 on your 2024 tax return then you are fine to do so.  You should be able to figure out what portion of the total interest that will be earned at maturity has been earned by the end of 2024.  Then, when it matures in 2025 and issues you a statement for the full amount of interest earned, you will just deduct the amount of interest that you reported in 2024.

Keep in mind that if you are paying taxes on this interest in Spain it may be best to declare the income at the same time that it is reported there.  The US foreign tax credit gives credit for the lesser of taxes paid or the equivalent US taxes on the foreign income.  By splitting up the interest on two separate years you will reduce your foreign taxable income in 2025 and may not be able to take advantage of the full foreign tax credit to which you would otherwise be entitled.

@Juancar