Voluntary Tax Withholding on Selling I Bonds at TreasuryDirect (2024)

FAQs

Voluntary Tax Withholding on Selling I Bonds at TreasuryDirect? ›

TreasuryDirect does not withhold state taxes because I Bonds are exempt from state taxes. If you choose to have TreasuryDirect withhold taxes, the amount withheld for federal income tax will be in Box 4 of Form 1099-INT together with the interest amount in Box 3.

If we hold your securities, we can ease your tax burden by withholding taxes for you during the year. Each time we pay interest, we can withhold part of the interest for taxes.

U.S. Retirement Plan or U.S. Individual Retirement Bonds

The redemption proceeds of United States Retirement Plan Bonds or Individual Retirement Bonds you have submitted for redemption are subject to Federal income tax withholding unless you elect not to have withholding apply.

Is interest income from I bonds taxed as capital gains? No, the interest income earned from I bonds is not considered a capital gain and is therefore taxed differently. Instead, it is taxed as regular income at the federal level and exempt from state and local taxes.

You can report the interest each year you earn it or when you cash the bond. You will report it on Schedule B of your 1040. You can avoid these taxes by using the money for qualified higher education expenses.

Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.

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 must hold I bonds for at least one year before redeeming them. But if you cash them in less than five years, you lose the last three months of interest. There's no maximum holding period for I bonds. And they'll continue to earn interest until they reach maturity 30 years from their issue date.

We put a 1099 into your TreasuryDirect account if: You cash a savings bond in TreasuryDirect. (We don't provide a 1099 if you only buy or hold a savings bond.) You hold a marketable security in TreasuryDirect and the security earns interest.

The process for selling your I Bonds is quite similar to how you bought your I Bonds. Log in to your TreasuryDirect account, select the bonds you want to cash, and follow the on-screen instructions. The money will be deposited directly into your linked bank account.

Do I need to report I bonds on my tax return? ›

I cashed some Series E, Series EE, and Series I savings bonds. How do I report the interest? 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.

At a bank: If a bank cashes your savings bond, they are responsible for getting you a 1099-INT. They may give or mail you the 1099-INT as soon as you cash the bond or they may wait until the following January.

The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 120-day period.

The amount of my federal payment (e.g., income tax refund) has been reduced ("offset"). Why? If an individual owes money to the federal government because of a delinquent debt, the Treasury Department can offset that individual's federal payment or withhold the entire amount to satisfy the debt.

Key Takeaways. Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.

Taxable bank or brokerage accounts: In most instances, taxes are not withheld from capital gains, distributions, or other income generated from such accounts.