When is savings bond interest taxable

Who owes the tax? When must I report the interest on my tax form? How do I report the interest? 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. See instructions in IRS Publication 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 cash 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 bonds 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.

If a financial institution pays the bond, you will receive a paper INT from that financial institution either soon after you cash your bonds or within the first two months after the end of the year in which you cash your bonds.

If you cash electronic bonds in your TreasuryDirect account, your INT will be available early the next year in your account. Actively scan device characteristics for identification.

Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Bonds typically earn interest, which is the amount that a bond can be redeemed for above its face value. The face value is the bond's original purchase price.

The interest on savings bonds is also subject to federal gift , estate, and excise taxes. On the state level, the tax on the interest applies for estates or inheritances. The ownership of the bond governs who is responsible for paying tax on the interest. If one person purchases the bond and is the sole owner for the life of the bond, that person owes the taxes on the interest. If a child is the sole owner, a parent may report the interest on the bond and pay the taxes on the parent's tax return.

However, there are ownership situations whereby the tax responsibility can vary. Another strategy for how to avoid taxes on savings bond interest involves rolling the money into a college savings account. There are some advantages to either approach. With a college savings plan, you can continue saving money on a tax-advantaged basis for higher education.

Keep in mind that gift tax exclusion limits still apply to any money you add to a on a yearly basis. You can only contribute to one of these accounts on behalf of a child up to their 18 th birthday.

Withdrawals are tax-free when the money is used for qualified education expenses. But you have to withdraw all the funds by age 30 to avoid a tax penalty. When the bonds reach final maturity, they stop earning interest. Series EE bonds issued in January reached final maturity after 30 years, in January That means that not only have they stopped earning interest, but all of the accrued and as yet untaxed interest is taxable in If you own Series EE bonds paper or electronic , check the issue dates.

If they have stopped earning interest, you probably want to redeem them and put the money into something more lucrative. Contact us if you have any questions about the taxability of savings bonds, including Series HH and Series I.