Are Savings Bonds Taxable? Federal, State, and Education Rules

Yes, savings bonds are taxable at the federal level. Interest earned on Series EE and Series I bonds counts as ordinary income on your federal return, but it is exempt from state and local income tax.¹ Most owners don’t owe anything while the bond sits untouched. The tax bill usually comes due in the year you cash the bond or the year it hits final maturity at 30 years, whichever comes first.

How the Federal Tax Works

Savings bond interest is taxed at whatever ordinary-income bracket you fall into for the year you report it. The Treasury Department issues a Form 1099-INT showing the total interest earned, and you enter that amount on your Form 1040.² If your total taxable interest for the year tops $1,500, you’ll also need to complete Schedule B.³

For electronic bonds held in TreasuryDirect, the 1099-INT appears in your account by January 31 of the year after you cash the bond. For paper bonds, the form is generated only when the bond is redeemed or matures.²

When You Report: Deferred or Annual

Federal law gives you two options for reporting the interest. You can wait until you cash the bond or it matures, which is the default and what most owners do. Or you can report the interest each year as it accrues.⁴

Once you pick a method, it applies to every savings bond you own and every one you buy later. Switching back requires IRS permission through a formal change in accounting method.⁵

Annual reporting can work well for bonds registered to a child with little other income. The small yearly accrual may fall below the child’s filing threshold, meaning no tax at all.

State and Local Tax

Federal law prohibits states and their political subdivisions from taxing U.S. government obligations or the interest they pay.¹ That protection applies in every state, regardless of where you live or where the bond was purchased. In high-tax states, this makes savings bonds more competitive after tax than their headline rate suggests.

One boundary worth naming: the state and local exemption covers income tax, not estate or inheritance tax. If bonds are part of a deceased person’s estate, the state can still apply its own estate or inheritance levy to their value.²

How to Avoid Federal Tax With the Education Exclusion

You can exclude savings bond interest from federal income tax entirely if you use the proceeds for qualified higher education expenses in the same year you redeem the bonds. Qualified expenses mean tuition and required fees at an eligible college, university, or vocational school, paid for you, your spouse, or a dependent claimed on your return. Room, board, and books do not count.⁶

Contributions to a 529 qualified tuition program or a Coverdell Education Savings Account also count as qualifying use, as long as the contribution is made in the year you cash the bonds and is for you, your spouse, or a dependent.⁷

Several gates narrow who can actually use the exclusion:

The bond must have been issued after December 31, 1989.
The bond owner must have been at least 24 years old before the bond’s issue date. A bond registered in a child’s name will not qualify.⁸
Married couples must file jointly. Married filing separately is disqualifying.⁶
For the 2026 tax year, the exclusion begins phasing out when modified adjusted gross income exceeds $101,800 for single filers or $152,650 for joint filers, and disappears entirely at $116,800 and $182,650.

If you’re saving for a child’s college through savings bonds, register the bonds in your own name (or jointly with your spouse), not the child’s. A bond owned by the child almost certainly fails the age-at-purchase test.⁸

You also have to reduce your qualifying expenses by any tax-free scholarships, veterans’ education benefits, or distributions from 529 or Coverdell accounts used for the same costs. You can’t claim the same dollar of tuition under two tax benefits.⁶

Claim the exclusion by filing IRS Form 8815 with your return. If your qualified expenses equal or exceed the total redemption proceeds, all of the interest is excludable. If expenses are less than the proceeds, the form prorates the exclusion. The form also applies the income phase-out.⁷ Keep receipts for the education expenses and records for each bond you cashed (serial number, issue date, face value, and proceeds).

Who Owes Tax When a Bond Has Co-Owners

When two people are listed as co-owners on a savings bond, the person who paid for it owes tax on the interest. If one co-owner funded the entire purchase, that co-owner reports all the interest no matter whose name appears first. If both contributed, each reports interest in proportion to what they put in.⁹

The 1099-INT is issued to whoever redeems the bond, and that isn’t always the person who owes the tax. If a non-purchasing co-owner cashes the bond, the purchaser is still on the hook for the federal tax, and the co-owner receiving the 1099-INT will need to show the IRS that the income belongs to someone else.

Giving a Bond Away or Reissuing It

Handing a bond to another person doesn’t by itself trigger tax. Reissuing the bond can. When Treasury reissues an electronic bond and removes the original owner, it produces a 1099-INT for all interest earned up to that date under the original owner’s Social Security number. For an owner who was deferring interest, that reissuance creates an immediate tax bill on years of accumulated earnings.¹⁰

After reissuance, the new owner is only responsible for interest that accrues from that point forward. When the new owner eventually cashes the bond, the 1099-INT will still show total lifetime interest, but the new owner can subtract the portion already reported by the original owner, provided they can document it.²

If the original owner had been reporting annually before the gift, the picture is simpler: tax on pre-gift interest is already paid, and the new owner just owes tax on interest earned after the transfer.²

Inherited Bonds

When a bondholder dies, whoever inherits the bond generally owes federal income tax on the interest. If the deceased owner never reported any of the accumulated interest, the full amount becomes taxable to whoever eventually redeems the bond.²

There’s a planning option many executors miss. The person filing the deceased owner’s final tax return can elect to report all accrued, previously unreported interest on that final return. Doing so shifts the tax off the beneficiary. When the beneficiary later cashes the bond, they subtract the amount reported on the decedent’s return and pay tax only on interest earned after the date of death. Whether the election saves money depends on the decedent’s final-year bracket compared with the beneficiary’s expected bracket.

Savings bond value at the date of death may also be included in the deceased person’s gross estate for federal estate tax. The 2026 federal estate tax exemption is $15,000,000, so most families won’t owe estate tax on savings bonds.¹¹ For larger estates, the accrued interest adds to the total and can push the estate closer to the threshold.

1
Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation
2
TreasuryDirect. Tax Information for EE and I Bonds
3
Internal Revenue Service. Savings Bonds 1
4
Office of the Law Revision Counsel. 26 USC 454 – Obligations Issued at Discount
5
eCFR. 26 CFR 1.454-1 Obligations Issued at Discount
6
Office of the Law Revision Counsel. 26 USC 135 – Income From United States Savings Bonds Used to Pay Higher Education Tuition and Fees
7
Internal Revenue Service. Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
8
TreasuryDirect. Using Bonds for Higher Education
9
Internal Revenue Service. U.S. Savings Bonds Co-owners
10
TreasuryDirect. Changing Information About EE or I Savings Bonds (Reissuing)
11
Internal Revenue Service. Whats New — Estate and Gift Tax