Savings bond taxes: what you owe and when you report it
Savings bond interest is taxed only by the federal government, as ordinary income. You choose when to report it: all at once when you cash, or a little every year. The calculator gives the federal tax.
Federal income tax on this interest
$880
Taxed as ordinary income on the return for the year you report it (Form 1099-INT). New York and its localities cannot tax it.
| Federal marginal rate | 22 % |
| Share of the interest | 22.0 % |
| State tax a bank CD would have cost (New York) | $236 |
Worked out by Radif Partners · How we calculate · rates read on treasurydirect.gov and fiscaldata.treasury.gov · not personal financial advice
Interest on EE and I savings bonds is subject to federal income tax and exempt from state and local income tax. It is the difference between what you paid and what you receive, and it is taxed at your ordinary rate, not as a capital gain. Most owners report it in the year they cash the bond, or in the year it reaches final maturity at 30 years if that comes first; that is method 1 in IRS Publication 550. The alternative, method 2, is to report each year's increase in value. For a single filer with $85,000 of other taxable income, $4,000 of bond interest adds $880 of federal tax under the 2026 brackets, at a marginal rate of 22 %. In California the same interest from a bank account would also cost $372 of state tax; from a savings bond it costs none. The interest is reported on Form 1099-INT, box 3, and may be excluded altogether when it pays for higher education.
Federal rate on each extra dollar of interest
Bond interest is added to your other income and taxed at your top bracket, under the 2026 brackets set by Revenue Procedure 2025-32 (IRS, Rev. Proc. 2025-32). The table gives the marginal rate at four levels of taxable income, and what $1,000 of interest costs at that rate for a single filer.
| Taxable income | Single | Joint | Tax on $1,000, single |
|---|---|---|---|
| $40,000 | 12 % | 12 % | $120 |
| $80,000 | 22 % | 12 % | $220 |
| $150,000 | 24 % | 22 % | $240 |
| $250,000 | 32 % | 24 % | $320 |
Federal tax on your interest
Federal income tax on this interest
$1,500
| Federal marginal rate | 12 % |
| Share of the interest | 12.0 % |
| State tax a bank CD would have cost (New York) | $675 |
Method 1 or method 2
Publication 550 gives cash-method taxpayers, which means nearly all individuals, two options (IRS Publication 550). Under method 1 you report the interest in the year the bond is cashed, disposed of or reaches final maturity, whichever comes first. Under method 2 you report the increase in value each year. Switching from method 1 to method 2 needs no permission, but in the year of change you report all interest accrued to date on all your bonds. Switching back needs the IRS's permission, which is granted automatically when you attach a statement headed "131" to your return for the year of change, with the details the publication lists, or when you file Form 3115.
TreasuryDirect explains the same choice from the holder's side (TreasuryDirect, tax information): whichever method you use, the 1099-INT comes only at the end and shows all the interest the bond ever earned. If you reported it along the way, you subtract the part already taxed on Schedule B. Publication 550's own example is an EE bond bought for $500.00 in March 2006 and cashed in March 2025 for $913.60: the 1099-INT shows $413.60, but an owner who had reported yearly includes only the interest of the last months.
Bunching the interest into one year
Under method 1, decades of interest can land in a single year. When that pushes income into a higher bracket, spreading redemptions over several years lowers the total tax. The table compares $24,000 of bond interest received in one year with the same amount spread over 4 years, for a single filer with $90,000 of other taxable income, using the 2026 brackets for every year.
| Timing | Federal tax on the interest | Share |
|---|---|---|
| All $24,000 in one year | $5,446 | 22.7 % |
| $6,000 a year for 4 years | $5,280 | 22.0 % |
| Difference | $166 |
The saving comes only from staying under a bracket threshold. Someone whose income is far from the next threshold pays the same either way. Bonds at final maturity cannot be spread, since the interest is taxable in that year whether cashed or not; the matured bonds page shows which cohorts reach 30 years soon.
Who reports the interest
The owner who paid for the bond reports its interest. If you buy a bond in your name with a co-owner, you owe the tax; if two co-owners each paid part, each reports in proportion to what they paid. A bond bought for a child and registered in the child's name alone is the child's income, even if a parent paid and is the beneficiary (TreasuryDirect). When a bond is reissued to a new owner, the old owner reports the interest earned until the reissue and the new owner only what comes after. Spouses in a community property state who file separately each report half.
State tax and other taxes
No state or locality may tax the interest (31 U.S.C. 3124). Since it is in your federal adjusted gross income, most state returns have a line to subtract it. The exemption does not cover estate and gift taxes: a bond is part of an estate for federal estate tax and for any state estate or inheritance tax. For a heir, the inherited bonds page explains who reports interest earned before and after the owner's death.
Paying no tax at all
Interest on EE bonds issued after 1989 and on I bonds can be excluded from income when it pays for tuition and fees, or is put into a 529 plan or a Coverdell account, in the same year, subject to an income limit (IRS Publication 970). The bonds must be in the name of an owner aged 24 or more when they were issued. The education page computes the exclusion with Form 8815. To compare a savings bond's after-tax yield with a CD's, see the state tax-equivalent page.