Savings Bonds

Frequently Asked Savings Bonds Tax Questions

savings bonds

What Taxes Will I Owe When Cashing In Savings Bonds?

Savings bonds are exempt from state and local income taxes, and are subject to any federal, estate, excise and gift taxes. Additionally, they are subject to state estate and/or inheritance taxes.

When Must I Report The Taxes On Bonds?

You can defer reporting the interest income (earnings) on a bond until it reaches final maturity (normally 30 years from the issue date) OR when it is cashed in – whichever occurs first.

Note: If you give up ownership of the bond and the bond is reissued to someone else, you will need to report the interest earnings up to date you owned the bond.

How Should Interest Income From Bonds Be Reported On My Tax Return?

Interest earned from bonds should be reported on the same line with other interest income on a Federal Income Tax Return. Depending upon all the other factors concerning your tax return, you may, or may not, owe any income taxes at all! Contrary to what many investors believe, savings bonds do NOT have a special tax rate.

Note: If you are reporting the interest earnings on bonds another person owns (i.e. your child’s bonds), report that interest on the other person’s Federal Income Tax Return along with other interest income they are reporting.

What Tax Forms Should I Receive After Cashing In Bonds?

The bank or redeeming institution will issue a paper 1099-INT – either on the spot or it will be mailed to you in the first few months following the year the PAPER bond was redeemed.  This interest income information will also be supplied to the Internal Revenue Service. To learn more about paper bonds and the total interest earned, check out our savings bond calculator.

Note: For Electronic bonds, YOU must print out the 1099-INT from your Treasury Direct Account. Paper 1099-INT statements will NOT be mailed for paper bonds that were converted to electronic bonds or newly purchased e-bonds.

How Can I Avoid Having To Report A Large Amount Of Interest Income In Any Given Year?

You can elect to report ALL of the interest earned to date on your Federal Income Tax Return before you redeem the bond(s). Once this election is chosen, you must report the annual interest earned amounts for all your bonds, (including any new bond purchases) each year thereafter on your tax returns. Keep good records as proof of all of the annual interest reporting. When you redeem bonds, you will receive a 1099-INT for ALL of the interest earned – regardless of what was previously reported (the government doesn’t track annual interest reporting). Advise any co-owners, beneficiaries, heirs and financial or tax planners of the annual interest reporting, to avoid a double taxation issue.

Can Savings Bonds Be Tax Free If Used To Pay For My Child’s College Education?

Recent tax law changes may affect the tax free bonds for education rulings. Be certain to check the latest tax law changes with the IRS or a financial professional regarding the tax free bonds for education status before filing. Savings bonds issued after December 31, 1989, may be eligible for the “Tax Free Education Bond Program.” The program allows owners of series EE and I savings bonds to gain full, or partial, federal tax-free status for bonds used for funding a child’s education. Grandparents cannot take advantage of this feature. For rules and regulations associated with this program, speak to a financial and/or tax professional, the Internal Revenue Service for any updates or changes, and visit our Education page.

About SavingsBonds.com:

SavingsBonds.com’s savings bond calculator provides cash in values, interest rates and a personalized, printable, color-coded Inventory Report along with a “What This Means To You” explanation. For ongoing savings bonds management & updated bond values via unique monthly e-Bond Statements, try a free 14-day trial of our VIP Membership, which includes a helpful Cash-In-Report.

3 thoughts on “Frequently Asked Savings Bonds Tax Questions

  1. Is there any way that I can have a certain percentage taken out of my bonds for tax purposes when I cash the bonds?

    1. Hello Milton –

      Unfortunately, there is no. Cashing paper savings bonds is an all or nothing thing. When you go to a financial establishment and cash them you will be given (or mailed) a 1099-INT tax form. Please see https://www.savingsbonds.com/cashin2.cfm for more info, or feel free to contact our office at 1-800-717-BOND (2663) and one of our customer success managers will be happy to provide you with some additional details.

      Also, you might want to look into our membership services to ensure you maximizing your savings bonds investments so you don’t have any shocking tax repercussions. For less than $1/month we manage your bonds, send you invaluable monthly statements so you know exactly how much your bonds are making each month, and a color-coded inventory that outlines how we recommend you handle your bonds to ensure you are getting the most out of them!

      Wish you the best!

      -Steve

Leave a Reply

Your email address will not be published. Required fields are marked *