How is a CD taxed?

The yield of your CD is taxed as interest income by the IRS and taxed at your ordinary income tax rate, which is usually much higher than taxes on other forms of investment growth like capital gains. Long-term capital gains tax rates can be 0% – 20% at the federal level, whereas ordinary income tax rates can go as high as 37%.

How much is CD interest taxable?

Interest earned on CDs is taxed as ordinary income at your individual federal income tax rate. This rate can range from 10% to 37% depending on your taxable income and filing status. (Not sure what your taxable income is? Use this income tax calculator to find out.)

Are CD yields taxed as interest income?

And that amount is taxed as interest income, not at the (usually) more favorable capital gains rate. For example, if an investor is in the 24% tax bracket and has earned $300 in CD interest for the year, then they owe $72 in taxes. CD yields are taxed as interest income, not at the lower rate of capital gains.