How do I avoid paying taxes on Series EE bonds?
You do have to pay Federal taxes on the interest your series EE savings bond earns. You do not have to pay taxes at the state and local levels. The reporting is the same as series I bonds. You can also avoid paying taxes on the interest if you use the funds for qualified higher education expenses.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
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.
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.
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.
Situation | Who owes the tax |
---|---|
You use your money to buy a bond that you put in your name with a co-owner | You owe the tax |
You buy the bond but someone else is named as the only owner (for example, your child) | The person who is named as the owner (not you) |
Interest income from Treasury bills, notes and bonds - This interest is subject to federal income tax, but is exempt from all state and local income taxes.
While the Treasury will not penalize you for holding a U.S. Savings Bond past its date of maturity, the Internal Revenue Service will. Interest accumulated over the life of a U.S. Savings Bond must be reported on your 1040 form for the tax year in which you redeem the bond or it reaches final maturity.
You may be able to cash in paper EE bonds at a bank where you have an account or through TreasuryDirect. Ask your bank about its process for cashing savings bonds. Ask your bank how much it will cash at one time. Determine the identification or other documents you will need.
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.
When should I cash in EE savings bonds?
You can cash in (redeem) your EE bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
Banks and credit unions can redeem savings bonds over the counter.
How are savings bonds taxed? Savings bond interest is exempt from state and local income tax. Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first.
You can cash in an EE savings bond after you've owned it for one year—but the longer you own the bond, the more you'll earn. Paper Series EE savings bonds: You may be able to cash these bonds in at your bank if it provides that service. You can also cash them in by mail through TreasuryDirect.gov.
If they are EE or I bonds, you can convert them to electronic bonds in our free online program, TreasuryDirect.
Therefore, when you cash in your series EE bonds, you can simply use the proceeds to purchase I Bonds, he said. When you cash in your EE bonds, you will pay federal but not state income taxes on the interest portion of the redemption, he said.
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.
Series EE and Series I bonds no longer earn interest when they reach maturity 30 years from the date of issuance. If you have any bonds older than 30 years, we recommend cashing them in immediately because they are no longer earning interest.
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.
- Investing in a tax-deferred account such as a traditional individual retirement account or a 401(k).
- Stashing money in a tax-exempt account such as a Roth 401(k) or a Roth IRA.
What US bonds are tax free?
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.
If you invest in TreasuryDirect, your 1099 will be available electronically and you can print the form from your account. 1099 forms are available by January 31 of each tax year.
- Electronic savings bonds can be cashed on the TreasuryDirect website, and you'll receive the proceeds within two days.
- Paper savings bonds can be cashed at major financial institutions such as your local bank.
EE bonds you buy now have a fixed interest rate that you know when you buy the bond. That rate remains the same for at least the first 20 years. It may change after that for the last 10 of its 30 years. We guarantee that the value of your new EE bond at 20 years will be double what you paid for it.
Current Series EE bonds mature after 30 years, but they are guaranteed to double in value in the first 20 years during which time the interest rate is fixed. For example, if you invested $5,000 into Series EE bonds today, you are guaranteed to have at least $10,000 in 20 years.
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