Savings Bond Interest Tax Reporting: Deferral, Accrual, and Education Exclusion

Interest on Series EE and Series I savings bonds is taxable on your federal return, and savings bond interest tax reporting comes down to one choice: defer all the interest until you cash the bond (or it reaches final maturity) or report the yearly increase in value as it happens. Federal law exempts this interest from state and local income tax, so only the federal return is in play.¹

Deferral: The Default Method

If you’ve never actively chosen a method, you’re deferring. That’s the default for cash-basis taxpayers, and it means no interest is reported until a taxable event forces it. Cashing the bond, transferring ownership, or reaching final maturity all count.²

Both EE and I bonds reach final maturity 30 years after their issue date.³⁴ At that point the bond stops earning, and every dollar of accumulated interest becomes taxable that year whether you cash it or not. Old paper bonds in a drawer are the classic trap here. When you redeem or the bond matures, the Treasury or the redeeming bank issues a Form 1099-INT for the full lifetime interest.⁵

Deferral is simple. The tradeoff is a single-year lump of income that can push you into a higher bracket or affect other calculations tied to your AGI.

Annual Accrual: Reporting the Increase Each Year

The alternative is to report each year’s increase in redemption value as interest income that year. You make the election under IRC Section 454(a) simply by including the accrued interest on your return for the first year you want it to apply.⁶ There is no separate form.

Two conditions come with the election. It applies to every savings bond you own and every one you buy afterward; you can’t mix methods. And in the year you elect, you must report all interest that accrued on your existing bonds from purchase through the start of that tax year, on top of that year’s increase.⁶ If you’ve held bonds for years, that first-year total can be large.

To find each year’s increase, use the Treasury’s Savings Bond Calculator for paper bonds or check the value in your TreasuryDirect account for electronic bonds.⁷ Keep your own year-by-year records. When the bond is eventually cashed, the 1099-INT will show total lifetime interest, and you’ll need those records to prove what you already paid tax on.

Putting It on Your Tax Return

If your total taxable interest from all sources is more than $1,500 for the year, complete Schedule B (Form 1040) and list each payer and amount.⁸ At $1,500 or less, and if no other rule requires Schedule B, report the interest directly on the interest line of Form 1040.⁹

The tricky case is cashing a bond after years of accrual reporting. The 1099-INT shows the full lifetime interest, but you’ve already paid tax on most of it. List the full 1099-INT amount on Schedule B, then enter a subtraction on the next line for the interest you reported in prior years, labeled something like “U.S. Savings Bond interest previously reported.” You end up paying tax only on the portion earned since your last annual report.

Switching Between the Two Methods

You can change methods, but the two directions are not symmetric.

From Deferral to Annual Accrual

No IRS permission required. You start reporting the accrued interest on your return.⁵ The election covers every savings bond tied to your Social Security Number, and you must include all interest those bonds earned during the deferral years as part of that first-year total. That catch-up amount is taxable in the year of the switch, so the timing matters.

From Annual Accrual Back to Deferral

This is a formal accounting method change. Under Revenue Procedure 2024-23 it qualifies as an automatic change (designated change number 131), so you don’t request IRS approval, but you do attach a statement in lieu of Form 3115 to your return for the year of change.¹⁰ The change applies on a cut-off basis: any increase in redemption value after the beginning of the year of change is deferred, and interest already reported in prior years is not adjusted.

When Someone Else Is Involved

Ownership changes and joint arrangements can shift who owes the tax, and each of these has its own reporting mechanics.

Gifting or Reissuing a Bond

Transferring a bond to another owner is a taxable event for the original owner. When the bond is reissued, the Treasury reports all interest earned through the reissue date on a 1099-INT under the previous owner’s Social Security Number.⁵ If you’ve been deferring for 20 years and then reissue the bond to an adult child, all 20 years of interest hit your return that year. The new owner is responsible only for interest that accrues after the reissue.

A Co-Owner Cashes the Bond

Whoever cashes the bond receives the 1099-INT in their name. If that person shouldn’t owe tax on all of it (a co-owner handling the transaction for someone else, for instance), nominee reporting is the fix. List the full 1099-INT amount on your Schedule B, then enter “Nominee Distribution” on the next line and subtract the portion belonging to the actual owner. You also file a Form 1099-INT with the IRS naming yourself as payer and the actual owner as recipient, and give the actual owner a copy. For the 2025 tax year, Copy B goes to the actual owner by February 2, 2026, and Copy A goes to the IRS by March 2, 2026 (or March 31 if filing electronically).¹¹

The Bondholder Dies

Accrued interest doesn’t disappear at death, and savings bonds don’t get a step-up in basis. The interest is income in respect of a decedent, and the executor of a deferring bondholder’s estate has two options.¹²

Report all pre-death interest on the decedent’s final Form 1040. The beneficiary then owes tax only on interest earned after the date of death.
Make no election, in which case the beneficiary owes tax on all interest, before and after death, when the bonds are cashed or mature.

The first option often pays off when the decedent’s final-year income is low. If federal estate tax was paid on an estate that included the bond, the beneficiary can claim a deduction under IRC Section 691(c) against the income tax on that interest.¹² When the beneficiary later cashes the bonds, they report the full 1099-INT on Schedule B and subtract the amount already reported on the decedent’s return, noting the decedent’s Social Security Number.

Bonds Owned by a Minor

Interest on a child’s bonds is unearned income and can be subject to the kiddie tax once the child’s unearned income exceeds $2,700 for 2026, at which point amounts above that threshold may be taxed at the parent’s marginal rate. Some families elect annual accrual on a young child’s bonds in years when the child has little other income, so the accrued interest stays within the child’s standard deduction and no tax is owed. Parents can also elect to report a child’s interest on their own return using Form 8814 if the child’s gross income is under $13,500.¹³

Excluding Interest Used for Education

Redeeming EE or I bonds for qualified higher education expenses can let you exclude some or all of the interest under IRC Section 135, but the requirements are strict.¹⁴ The bond must have been issued after 1989, and the owner must have been at least 24 before the issue date.¹⁵ Bonds issued in a child’s name don’t qualify for the exclusion by either the parent or the child.

The bond must be redeemed the same year the expenses are paid. Qualifying expenses are tuition and required fees at an eligible institution, along with contributions to a 529 plan or Coverdell ESA. Room and board don’t count, and neither do sports or hobby courses outside a degree program.¹⁴

The exclusion phases out at higher incomes. For 2026, the phase-out begins at a modified adjusted gross income of $101,800 for single filers ($152,650 joint) and ends at $116,800 ($182,650 joint). You claim the exclusion on Form 8815 with your return for the redemption year. If your proceeds exceed your qualifying expenses, only a proportional share of the interest is excludable.

1
Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation
2
eCFR. 26 CFR 1.454-1 – Obligations Issued at Discount
3
TreasuryDirect. EE Bonds
4
eCFR. 31 CFR 359.5 – What Is the Maturity Period of a Series I Savings Bonds
5
TreasuryDirect. Tax Information for EE and I Bonds
6
Office of the Law Revision Counsel. 26 USC 454 – Obligations Issued at Discount
7
TreasuryDirect. Calculate the Value of Your Paper Savings Bonds
8
Internal Revenue Service. Instructions for Schedule B (Form 1040)
9
Internal Revenue Service. Savings Bond Interest Tax Reporting
10
Internal Revenue Service. Revenue Procedure 2024-23
11
Internal Revenue Service. Publication 550, Investment Income and Expenses
12
Internal Revenue Service. Publication 559, Survivors, Executors, and Administrators
13
Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
14
Office of the Law Revision Counsel. 26 USC 135 – Income From United States Savings Bonds Used to Pay Higher Education Tuition and Fees
15
Internal Revenue Service. Form 8815, Exclusion of Interest From Series EE and I US Savings Bonds Issued After 1989