Yes, savings bond interest is taxable income, but the timing and method depend on which type of bond you own

Interest earned on U.S. savings bonds counts as taxable income to the federal government. You owe tax on that interest whether you receive it in cash or it stays locked in the bond. The key difference is when you report it: some bonds let you choose to pay tax each year, while others force you to wait until you cash the bond or it matures.

Series EE bonds and Series I bonds work differently from each other on the tax calendar. Series EE bonds accrue interest but don't pay it out until you redeem them, so most people report all the interest at once in the year they cash in the bond. Series I bonds also hold the interest inside the bond, but you have the option to report interest annually if you want to spread the tax burden across multiple years.

State and local income tax does not explore to savings bond interest — that's a federal-only tax. This is one real advantage savings bonds have over bank savings accounts or money market funds.

Key Takeaways

  • All interest earned on Series EE and Series I bonds is subject to federal income tax, even though you don't receive the money until you redeem the bond.
  • Most people report Series EE bond interest in the single year they cash the bond, creating a larger taxable income that year.
  • Series I bond owners can choose to report interest every year instead of waiting, which may lower their tax bill if they're in a lower tax bracket in future years.
  • Savings bond interest is never subject to state or local income tax, only federal tax.
  • If you use Series I bond proceeds to pay for education, you may exclude some or all of the interest from taxable income under specific rules.

How Series EE Bonds Report Interest at Tax Time

Series EE bonds accumulate interest inside the bond for up to 30 years, but you don't receive any money until you redeem it. When you cash in the bond, the Treasury sends you a Form 1099-INT showing the total interest you earned. You then report that entire amount as income on your federal tax return for that year.

This creates a tax spike in the year you redeem. If you cash a $10,000 Series EE bond that earned $5,000 in interest, you'll report $5,000 as additional income that year, which could push you into a higher tax bracket. Many people don't realize this until they file their return.

You cannot choose to report Series EE interest year by year. The IRS treats these bonds as "accrual method" instruments, meaning the interest is considered earned even though you haven't received it. You must wait until redemption to report it all at once.

How Series I Bonds Give You a Choice on Reporting Interest

Series I bonds also hold interest inside the bond until you redeem it, but the IRS lets you pick your reporting method. You can either report all the interest in the year you cash the bond (like Series EE), or you can report the interest every year as it accrues, even though you haven't received the money.

Choosing annual reporting makes sense if you expect to be in a lower tax bracket in future years. For example, if you're working now but plan to retire soon, you might report I bond interest annually while you're still working, then redeem the bond after retirement when your income is lower. The interest you reported in earlier years won't be taxed again.

To report I bond interest annually, you must make an election with the IRS. You do this by attaching a statement to your tax return the first year you want to use this method. Once you elect annual reporting for a specific bond, you must stick with it for that bond's entire life — you can't switch back to reporting it all at redemption.

The Education Exclusion for Series I Bonds

If you use Series I bond proceeds to pay for may have access to education expenses in the same year you redeem the bond, you may exclude some or all of the interest from your taxable income. may have access to expenses include tuition and fees at an accredited school or university, plus room and board if the student is at least half-time.

The exclusion is limited. The amount you can exclude cannot exceed the education expenses you paid that year. If you redeem a bond with $3,000 in interest but only spent $2,000 on tuition, you can exclude only $2,000. The remaining $1,000 is taxable.

You must meet income limits to use this exclusion. For 2024, the phase-out begins at $85,800 for single filers and $135,600 for married filing jointly, though these numbers change each year. You'll need to report the exclusion on Form 8815 when you file your return.

What Happens If You Inherit Savings Bonds

If someone leaves you a savings bond in their will, you inherit the bond with all its accrued interest. The interest earned up to the date of death is taxable to the deceased person's estate, not to you. Any interest that accrues after you become the owner is your taxable income.

The person who owned the bond before you may have already reported interest annually (if it was a Series I bond), or they may have deferred all reporting until redemption. That choice stays with the bond — you cannot change it. If they deferred, you'll report all the accumulated interest when you eventually redeem it.

How to Report Savings Bond Interest on Your Tax Return

When you redeem a savings bond, the Treasury issues a Form 1099-INT to you and the IRS. This form shows the interest amount in Box 1. You report this amount on Schedule B (Interest and Ordinary Dividends) if your total interest income exceeds $1,500, or directly on Form 1040 if it's below that threshold.

Keep your redemption paperwork. The Treasury's records and your Form 1099-INT should match, but if there's a discrepancy, you'll need documentation to explain it to the IRS. If you redeemed bonds at a bank or credit union, keep the receipt showing the redemption date and amount.

If you elected to report Series I bond interest annually, you'll report that interest each year on Schedule B even though you haven't received the money. When you finally redeem the bond, the Form 1099-INT will show only the interest you haven't yet reported, so you won't double-count.

Frequently Asked Questions

Do I owe taxes on savings bonds if I never cash them in?

Not during your lifetime, unless you elected annual reporting for Series I bonds. If you never redeem the bond, you never report the interest. However, if you pass away while holding the bond, your estate may owe tax on the accrued interest, depending on the total value of your estate and state law.

Can I avoid taxes by giving my savings bonds to my children?

No. The person who owns the bond when it's redeemed owes the tax on the interest. If you give a bond to your child and they cash it, they report the interest. The interest earned before the transfer is still taxable to whoever redeems it — usually your child in this scenario.

What if I lost my Form 1099-INT for a savings bond I redeemed years ago?

Contact the Treasury at treasurydirect.gov or call 1-844-284-2676. They can issue a duplicate Form 1099-INT or provide a statement of your redemption history. If you need to amend an old return, you'll file Form 1040-X with the corrected interest amount.

Are savings bonds taxed differently if I'm retired?

No, the tax rate is the same regardless of your age or employment status. However, if you're retired and in a lower tax bracket, you might benefit from choosing annual reporting on Series I bonds so the interest is spread across multiple years at lower rates.

Do I report savings bond interest on state taxes too?

No. Federal law exempts savings bond interest from state and local income tax. You report it only on your federal return. This is one reason some people prefer savings bonds over bank savings accounts in high-tax states.