Reporting Taxable Interest on Bonds

Interest earned from corporate and government bonds is almost always taxable interest, and it must be reported as income to the IRS.

This page:

  • Identifies which bonds earn taxable interest.

  • Lists your options for mature bonds.

  • Explains two methods for claiming taxable interest.

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Reporting interest from taxable bonds

Almost all interest you receive from government and corporate bonds is taxable, with the exception of municipal bonds, and a few others (see table.)

Bond interest is reported to you on Form 1099-INT, which you should receive by the beginning of February. All the crucial information you will need to report the taxable interest - the payer's name, address, identification number as well as total earned interest for the tax year, any tax withheld, and any penalties or expenses - will be included on this sheet.

Reporting taxable interest from Series E, EE, and I bonds

Earned taxable interest on any Series E, Series EE and Series I bonds may be claimed either in increments every year, as it is earned, or all at once.

If you choose to report the total accumulated taxable interest all at one time, you are responsible for doing so either the year the bond reaches maturity or the year you redeem the bond for cash, whichever comes first.

Most people choose to declare the taxable interest earned all at once as to avoid the hassle but if you do not want to be burdened by a heavy load of taxes in a single year you should look into reporting the interest each year.

If you choose to report your earned interest in yearly allotments, you are required to inform the IRS of your decision and are then committed to reporting the taxable interest using this method until the bond reaches maturity. If it is absolutely necessary to switch methods twice, you can write to the IRS requesting permission to do so, but you must receive their permission before actually changing.

Reporting taxable interest from Series H and HH bonds

You are required to claim your earned interest from Series H and Series HH bonds each year. Because the interest is paid to you as it is earned you must report the interest on your tax return for the year it is received.

Although the calculations may be time consuming, using an online tax filing program makes this task much easier. For each different bond, you simply enter the information found on the 1099-INT into the appropriate spaces. The software does all of the calculations and completes the required Tax Schedule for you.


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The year your bonds mature - redeem or trade?

When Series E and Series EE bonds reach maturity you must do one of two things. You can either redeem them for cash or you can trade them in for Series HH bonds and continue earning interest on them.

Because trading bonds is a nontaxable transaction, do not be concerned about incurring any additional expense.

When making your decision about whether to trade or redeem your bonds you should consider three things:

  • The amount of tax you will have to pay on the interest if you redeem the bond
  • Whether or not you will want to redeem the Series HH bond prematurely, and if so, what early withdrawal penalties you might be subjected to
  • How much interest you may earn for letting it mature as a Series HH bond.

For each individual's situation, there are different circumstances that should be kept in mind - financial security, age, budget - and only you can make a well-informed decision.

Note: Series I, H, and HH bonds can not be traded. They must be redeemed the year they reach maturity.

Save Money - Avoid Taxes on Interest.

If you use funds from qualified Series EE or Series I U.S. Savings Bonds to pay for college expenses and your income does not exclude you from eligibility, you can avoid paying taxes on the interest.

Form 8815 is the separate sheet you need to fill out for the Education Savings Bond adjustment.

Related IRS publications

You can get more information about reporting interest earned from bonds directly from the IRS, in the form of Publication 550.

Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)