Do you pay taxes on savings bonds?
You don't have to pay state or local income tax on them. You can choose not to pay federal income tax on them until you cash them or they mature, whichever is first. Under certain conditions, you can avoid federal income tax on interest by using the interest to pay for higher education.
In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
Series EE bond interest isn't taxed as it accrues unless the owner elects to have it taxed annually. If the election is made, all previously accrued but untaxed interest is reported in the election year. In most cases, the election isn't made so that the benefit of tax deferral can be enjoyed.
If you cashed series EE or I U.S. savings bonds this year that were issued after 1989, you may be able to exclude from your income part or all of the interest on those bonds. Use Form 8815 to figure the amount of any interest you may exclude.
If you cash a paper savings bond at a local bank, that bank is responsible for giving you a 1099. If you cash a paper savings bond by mailing it to Treasury Retail Securities Services, we mail you a 1099 by January 31 of the following year. (You can call us for a duplicate statement, if needed, beginning February 15.)
The Education Tax Exclusion
The IRS lets you avoid paying taxes on interest earned by Series EE and Series I savings bonds when you redeem them if you use the money toward qualified higher education costs for yourself, your spouse, or any of your dependents.
Tax on interest
The interest you earn on corporate bonds is generally always taxable. Most all interest income earned on municipal bonds is exempt from federal income taxes. When you buy muni bonds issued by the state where you file state taxes, the interest you earn is usually also exempt from state income taxes.
You report the interest that accumulated on the bond during the bondholder's lifetime on their final tax return. The estate would be responsible for paying any tax due and going forward, you'd owe tax on any interest that continues to accrue on reissued bonds.
Five-year mark: You won't be penalized for cashing in your bonds after five years. Cashing in at this point could be beneficial if you need funds for a major expense, such as education or a home purchase. 20-year guarantee: Series EE bonds issued after May 2005 have a guaranteed value doubling period of 20 years.
Municipal Bonds
Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes.
How much is a 30 year old $100 savings bond worth?
| Denomination | Issue date | Value |
|---|---|---|
| $100 | October 1994 | $164.12 |
| $1,000 | October 1994 | $1,641.20 |
| $10,000 | October 1994 | $16,412.00 |
All interest income is taxable unless specifically excluded. tax-exempt interest income — interest income that is not subject to income tax. Tax-exempt interest income is earned from bonds issued by states, cities, or counties and the District of Columbia.
I bonds have important tax advantages for owners. Interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.
Maturity dates for Series EE bonds
Although they technically mature after 20 years, these bonds actually don't expire for 30 years. You'll keep earning interest for an extra decade. As long as you cash in your bond at the maturity date, you can guarantee your investment will double.
- Invest in a tax-deferred account such as a traditional individual retirement account or a 401(k).
- Stash money in a tax-exempt account such as a Roth 401(k) or a Roth IRA.
The interest on EE bonds isn't taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn't made so bond holders receive the benefits of tax deferral.
If only one person is named on the bond and that person has died, the bond belongs to that person's estate. If two people are named on the bond and both have died, the bond belongs to the estate of the one who died last.
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.
You report the interest that accumulated on the bond during the bondholder's lifetime on their final tax return. The estate would be responsible for paying any tax due and going forward, you'd owe tax on any interest that continues to accrue on reissued bonds.
Not necessarily. The customer may have moved or the bonds may have been a gift and contain the purchaser's information. Ask the customer to enter the correct address and/or Social Security Number on the back of the bonds before continuing.
How much tax do you pay on savings account interest?
The tax rate on your savings account interest depends on your federal income tax bracket. For 2024, you may pay between 10 to 37 percent tax on interest earned. For example, if you are in the 22 percent tax bracket and earn $100 in interest, you would owe $22 in federal taxes. You may also need to pay state taxes.
You can choose not to pay federal income tax on them until you cash them or they mature, whichever is first. Under certain conditions, you can avoid federal income tax on interest by using the interest to pay for higher education.
CDs are commonly taxed the year the interest income is earned and not at maturity, however, an inherited CD and its income accrued before the holder's death are not taxable for the recipient.
Upon the death of the bondholder, the bond value is typically included in the estate for IHT purposes. The tax treatment can vary depending on whether the bond is an onshore or offshore product. For onshore bonds, corporation tax paid by the insurance company can affect the overall tax liability.
All Series EE Bonds reach final maturity 30 years from issue. All Series EE bonds reach final maturity 30 years from issue. Series EE savings bonds purchased from May 1995 through April 1997 increase in value every six months. The interest rate is compounded semiannually.
