Tax Savings Bonds

In May, 1941, the Series E Bonds were the first to offer a bond in which you could defer the taxable interest until the bond is redeemed. Since then, in January, 1980, the Series EE bonds continue to be tax deferrable until they are redeemed. Series I Bonds are protected against inflation, and these bonds are also tax deferrable until they mature or are redeemed. The interest accrued in savings must be reported to the IRS for tax purposes on the year the bonds mature, or the bonds are redeemed. You have another tax option with savings bonds, in which you can report the interest accrued annually on your federal tax return. On the year that you redeem your bonds you will receive a 1099-INT to declare the interest paid as declarable income.

Series H and HH bonds have not been for sale since 2004. You can exchange them for Series E or EE bonds, and you must declare the interest paid on the Series E or EE bonds on your federal income taxes as interest earned. These bonds are issued by the federal government, so you don't have to pay state or local taxes on them. You

If the interest from savings bonds is used to pay for college tuition, you may not have to pay federal taxes on the money. You would need to check with the IRS for the rules concerning using Series EE or I bonds for the costs of higher education. If you use the savings bonds for your own education, or on the education on your spouse or children, your savings bonds become exemption rather than an expense at federal income tax time.

How you report interest accrued on your bonds is up to you. You can defer until your bonds reach final maturity, or at redemption. You can also report the interest accrued on your bonds each year. If you choose the accrual method of reporting interest, you must keep reporting in that fashion until your bonds reach final maturity or you redeem them. If you buy bonds for yourself and another person, you will be the one who owes the taxes on the interest earned. If you purchase bonds for someone else and your name is not on them, then the person you bought them for is responsible for the taxes. However, if you purchase bonds with someone else, and you are both co-owners of the bonds, then each of you are responsible to report your separate share of the interest earned.