Which taxes apply
| Tax | Applies to savings bond interest? |
|---|---|
| Federal income tax | Yes |
| State and local income tax | No |
| Federal estate, gift and excise taxes; state estate or inheritance taxes | Yes, they can apply |
Only the interest is taxed: the value minus what was paid for the bond. The calculator shows it as "Interest earned".
When you report the interest
You can choose between two methods:
- Defer (most people): report all the interest in the year you cash the bond or the year it reaches final maturity, whichever comes first.
- Report every year: report each year's increase as it happens. Some families do this for bonds in a child's name.
The 1099-INT
You get a Form 1099-INT for the year the interest is paid. A bank that cashes your bond issues it right away or by January 31 of the next year. If Treasury cashes your paper bond, it mails the form the following January. For electronic bonds, the form appears in your TreasuryDirect account by January 31.
Rough estimate
Federal tax is roughly the interest times your tax bracket. On $1,000 of interest in the 22% bracket that's about $220. The bond list on the calculator does this sum for all your bonds. It's an estimate; your actual tax depends on your whole return.
Paying for college: the education exclusion
If you use EE or I bond money for qualified higher-education expenses, you may be able to exclude the interest from federal income tax. The bond must have been issued after 1989, and the owner must have been at least 24 when it was issued. Income limits apply. The claim is made on IRS Form 8815.
Inherited bonds
Interest that built up during the original owner's life can be reported on the owner's final return or by the person who inherits the bond. See inherited savings bonds and ask a tax professional which is better in your case.
Sources: TreasuryDirect, Tax information for EE and I bonds; IRS Publication 550. This page is general information, not tax advice.
Common questions
Do I pay state tax on savings bonds?
No. Savings bond interest is exempt from state and local income tax. It is subject to federal income tax.
Is the whole bond value taxable?
No, only the interest: the current value minus what was paid for the bond.
I never cashed a bond that matured years ago. When was the interest taxable?
If you deferred reporting, the interest was reportable for the year the bond reached final maturity, even though you didn't cash it. A tax professional can advise on correcting a past return.