Note: The tax situation is different for HH bonds, which may still be earning interest.
Tax information for HH savings bonds
Is savings bond interest taxable?
The interest that your savings bonds earn is subject to
- federal income tax, but not state or local income tax
- any federal estate, gift, and excise taxes and 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. See the possibilities and restrictions for using savings bonds for education.
When do I get the interest on my EE or I bonds?
Your EE and I savings bonds earn interest from the first month you own them. You get the interest all at once. For a paper bond, this happens when you cash the bond. For an electronic bond, it happens either when you cash the bond or when the bond finishes its 30-year life (it matures). When an electronic bond matures, we put the money into the Certificate of Indebtedness in your TreasuryDirect account.
When must I report the interest?
You have a choice. You can
- put off (defer) reporting the interest until you file a federal income tax return for the year in which you actually get the interest, or
- report the interest each year even though you don't actually get the interest then
Deferring until you get the interest
Most people put off reporting the interest until they actually get it.
You get a Form 1099-INT for the year in which you get the interest. (INT stands for "interest." The 1099-INT tells you how much interest the bond earned.)
- If a financial institution pays the bond, you get a 1099-INT from that financial institution either soon after you cash your bond or by January 31 of the following year.
- If your bonds are in your TreasuryDirect account, your 1099-INT is available in your account by January 31 of the following year.
- Go to your TreasuryDirect account.
- Select the ManageDirect tab.
- Under "Manage My Taxes", choose the relevant year.
- Near the top of your "Taxable Transaction Summary", choose the link to view your 1099. Video
NOTE: Your "Taxable Transaction Summary" is NOT your 1099.
Reporting the interest every year
You may choose to report the interest every year. For example, you may 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.
But you will not get a 1099-INT every year. You only get a 1099-INT at the end.
- If the savings bonds are in a TreasuryDirect account, you can see the interest earned each year in the account.
- If the savings bonds are on paper, our Savings Bond Calculator can help you figure out the interest to report.
When you get the 1099-INT at the end, it will show all the interest the bond earned over the years. For instructions on how to tell the IRS that you already reported some or all of that interest in earlier years, go to IRS Publication 550 and look for the section on U.S. Savings Bonds.
Changing from one method to the other
You can change from one reporting method to the other.
-
You were deferring. You now want to report every year.
You may do this without permission from the IRS.
But you must do this for all the savings bonds for the Social Security Number whose tax return this is. In addition to the interest for the year you are now reporting, you must also report all interest those bonds earned in the years before you changed.
-
You were reporting each year. You now want to defer the interest.
You must fill out IRS Form 3115 or follow the instructions in IRS Publication 550 in the section on U.S. Savings Bonds
Where do I list the interest on my tax return?
Interest from your bonds goes 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.
Who owes the tax?
If ownership has not changed
| Situation | Who owes the tax |
|---|---|
| You are the only owner of the bond | You owe the tax |
| You use your money to buy a bond that you put in your name with a co-owner | You owe the tax |
| You buy the bond but someone else is named as the only owner (for example, your child) | 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 |
If ownership changes
| Situation | Who owes the tax |
|---|---|
| You give up ownership of the bond. We reissue the bond. | You owe tax on the interest the bond earned until it was reissued. |
| You are the new owner of a reissued bond. | You owe tax on the interest the bond earns after it was reissued. |
For electronic savings bonds in TreasuryDirect
- When we reissue the bond, we report the total interest the bond earned so far on a 1099-INT in the name and Social Security Number of the person being removed (the previous owner).
- When the new owner later cashes in the bond or the bond matures, we report the interest in the name and Social Security Number of the person being paid (the new owner). However, we report only the interest earned after we reissued the bond.
Therefore, whether you are the old owner or the new owner of an electronic savings bond, your 1099-INT will reflect the interest you earned on your EE or I savings bonds.
For paper savings bonds
The 1099-INT will only come when someone cashes the bond or the bond matures. The interest will be reported under the name and Social Security Number of the person who cashes the bond or who owns it when it matures. The 1099-INT will include all the interest the bond earned over its lifetime. If you are the new owner who gets that 1099-INT, you must prove to the IRS that a portion of the interest was previously reported to a different owner.
For instructions on how to pay tax only on the interest that you owe (the interest the bond has earned since you became the bond owner), see IRS Publication 550.
More about reissuing EE or I savings bonds
As a seasoned financial expert with an in-depth understanding of savings bonds and their tax implications, I aim to shed light on the various concepts mentioned in the article regarding tax information for HH savings bonds.
Firstly, let's address the fundamental concept: Is savings bond interest taxable? According to the provided information, the interest earned on savings bonds is subject to federal income tax, but not state or local income tax. Additionally, it is not subject to any federal estate, gift, and excise taxes, nor any state estate or inheritance taxes. This distinction is crucial for individuals planning their financial strategies and tax obligations.
The article emphasizes the potential tax benefits for those using savings bonds for higher education. It suggests that utilizing the money for educational purposes may exempt you from paying federal income tax on the savings bond interest. This is a key consideration for individuals looking to optimize their tax liabilities while funding education expenses.
Next, the article delves into the timeline of interest accrual and distribution for EE and I savings bonds. It states that the bonds start earning interest from the first month of ownership, and the interest is provided either when the bond is cashed or when it matures after its 30-year life. This timeline is crucial for bondholders to understand when to expect their interest payments.
The article introduces the option of reporting interest either annually or deferring until the interest is received. Reporting annually may be advantageous in certain situations, such as when savings bonds are in a child's name, potentially resulting in lower tax rates. The IRS provides Form 1099-INT, indicating the amount of interest earned, either soon after cashing the bond or by January 31 of the following year if the bonds are held in a TreasuryDirect account.
Furthermore, the article outlines the process of changing from one reporting method to another. Individuals can switch between deferring and reporting annually, but specific rules and obligations must be followed depending on the chosen method.
The article also clarifies where to list the interest on the tax return, noting that it goes on the same line as other interest income. It further details the tax obligations based on ownership scenarios, whether the bond has a single owner, co-owners, or is owned in a community property state.
Finally, the article explains the tax implications when ownership changes, including situations where bonds are reissued. It distinguishes the reporting process for electronic and paper savings bonds, emphasizing the importance of accurately reporting the interest earned during ownership changes to the IRS.
In summary, the article provides comprehensive insights into the tax aspects of savings bonds, covering interest taxation, educational benefits, interest accrual, reporting options, ownership scenarios, and the implications of ownership changes. This knowledge is essential for individuals seeking to navigate the complexities of savings bond taxation and make informed financial decisions.
