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Tax Considerations for I Bonds

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Is savings bond interest taxable?

The interest that your savings bonds earn is subject to

  • federal income tax, but not to state or local income tax
  • any federal estate, gift, and excise taxes as well as any state estate or inheritance taxes.

Using the money for higher education may keep you from paying federal income tax on your savings bond interest. Using I Bonds for Education.

Who owes the tax?

Situation Who owes the tax

You are the only owner of the bond

You

You use your money to buy a bond that you put in your name with a co-owner

You

You buy the bond but someone else is named as the only owner

The person who is named as the owner (not you)

You and another person buy a bond together, each putting in part of the money to buy the bond, and you are both named as co-owners

You and the other person must each report the interest in proportion to how much you each paid for the bond

You and your spouse live in a community property state and buy a bond that is community property and you file separate federal income tax returns

You and your spouse each report one-half of the interest

Reissue: Change in Ownership Reissuing Paper I Bonds Who owes the tax

You give up ownership of the bond and the bond is reissued

You owe tax on the interest the bond earned until it was reissued

You are the new owner of a bond that was reissued

You owe tax on the interest the bond earns after it was reissued but when or after you redeem the bond, the 1099-INT (see below) will show all interest earned from date of issue, including interest earned before it was reissued.  See instructions in IRS 550 for paying tax only on interest earned after the bond was reissued.

When must I report the interest on my tax form?

You have a choice. You can

  • report the interest every year
  • put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
  • you redeem (cash in) the bond and receive what the bond is worth, including the interest, or
  • you give up ownership of the bond and the bond is reissued, or
  • the bond stops earning interest because it has reached final maturity

Reporting the interest all at once at the end

Most people defer reporting the interest, putting it off until they are filing a federal income tax return for the year in which they receive what the bond is worth including the interest.

When electronic I Bonds in a TreasuryDirect account stop earning interest, they are automatically redeemed and the interest earned is reported to the IRS.

You can see the interest on your IRS Form 1099-INT.

  • If a financial institution pays the bond, you will receive a paper 1099-INT from that financial institution either soon after you redeem your bonds or within the first two months after the end of the year in which you redeem your bonds.
  • If you redeem electronic bonds in your TreasuryDirect account, your 1099-INT will be available through your account.

Electronic bonds

Log in to TreasuryDirect and go to ManageDirect. Form 1099-INT is one of the links on the ManageDirect page.

Reporting the interest every year

You may, however, choose to report the interest every year.

You may, for example, find it advantageous to report interest every year on savings bonds in a child's name. The child may be paying taxes at a lower rate than will be true years later when the bond matures.

Note: You (or the child if a bond is in the child's name) do not actually receive the interest every year even if you report it that way. The interest that the bond earns is reported on a 1099-INT after the bond is redeemed (cashed in) or is reissued to reflect a taxable change in ownership. The 1099-INT will show all the interest the bond has earned over the years. Go to IRS Publication 550, Investment Income and Expenses, for instructions on how to tell the IRS that you already reported some or all of that interest in earlier years.

Once you start to report the interest every year (for example, for a child in the child's Social Security Number), you must continue to do so every year after that for all your savings bonds (or, for example, the child's bonds) and any you acquire (or, the child acquires) in the future.

Our online Savings Bond Calculator can also help you determine the year-to-date earnings for the calendar year.

How do I report the interest?

Whether you are reporting interest at the end of the bond's life or every year, you report the interest from your bonds on your federal income tax return on the same line with other interest income.

If you are reporting the interest on bonds another person owns (for example, the interest on your child's bonds), you report that on the other person's federal income tax return with other interest income that person has earned.

If you choose to report interest every year, after the bond is redeemed, the 1099-INT will show all interest earned from date of issue.  See instructions in IRS Pub. 550 on how to report interest in this situation on your federal income tax return.

For more information

See IRS Publication 550, Investment Income and Expenses Investment Income and Expenses.