Do you pay federal taxes on I bonds?
Yes, you are required to pay federal income taxes on the interest earned by inherited series I savings bonds. The interest is taxed in the year it is earned and must be reported on the beneficiary's tax return. The amount of tax owed depends on the beneficiary's tax bracket and the amount of interest earned.
If a financial institution pays the bond, you get a 1099-INT from that financial institution either soon after you cash your bond or by January 31 of the following year. If your bonds are in your TreasuryDirect account, your 1099-INT is available in your account by January 31 of the following year.
Most all interest income earned on municipal bonds is exempt from federal income taxes. When you buy muni bonds issued by the state where you file state taxes, the interest you earn is usually also exempt from state income taxes.
If you invest in TreasuryDirect, your 1099 will be available electronically and you can print the form from your account. 1099 forms are available by January 31 of each tax year.
The tax rate charged will depend on how long you held the bond. If you've held it for less than a year, you'll be charged at your regular income tax rate. Bonds held for more than a year will be subject to potentially lower long-term capital gains rates.
- Investing in a tax-deferred account such as a traditional individual retirement account or a 401(k).
- Stashing money in a tax-exempt account such as a Roth 401(k) or a Roth IRA.
A 1099-INT issued when you cash the I bond will show all interest earned from the date of issue, including interest earned before it was reissued. IRS Publication 550 has instructions for paying tax only on the interest earned after the bond was reissued.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.
The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
Owners can wait to pay the taxes when they cash in the bond, when the bond matures, or when they relinquish the bond to another owner. Alternatively, they may pay the taxes yearly as interest accrues. 1 Most owners choose to defer the taxes until they redeem the bond.
Is Treasury bond interest taxed as ordinary income?
How that income is taxed depends on the underlying investments that are generating that income. The income from taxable bond funds is generally taxed at the federal and state level at ordinary income tax rates in the year it was earned. Funds that exclusively hold U.S. Treasury bonds may be exempt from state taxes.
Do the address and Social Security Number on the bonds have to match the customer's address and Social Security Number? Not necessarily. The customer may have moved or the bonds may have been a gift and contain the purchaser's information.

In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
I bonds also have important tax advantages for owners. For example, interest earned on I bonds is exempt from state and local taxation. Also, owners can defer federal income tax on the accrued interest for up to 30 years.
In some cases, the amount of tax-exempt interest a taxpayer earns can limit the taxpayer's qualification for certain other tax breaks. The most common sources of tax-exempt interest come from municipal bonds or income-producing assets inside of Roth retirement accounts.
Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes.
Another thing to note: Savings bonds don't get a step-up in basis at death the way stocks or other investments do. That means you have to pay tax on the full amount of interest due on the bonds as the inheritor.
The interest earned on fixed-income investments like bonds and notes is often subject to income tax. There are different taxation rules for government, corporate, and municipal bonds. IRS Form 1099-INT is sent to bondholders who declare income that results from interest payments.
The current carried interest loophole allows these money managers to pay the lower 23.8 percent capital gains tax rate on income received as compensation, rather than the ordinary income tax rates of up to 40.8 percent that they would pay for the same amount of wage income.
There is no specific limit or threshold that would cause the IRS to tax it. That being said, ant cash deposits of $10,000 or more would be reported by the bank in a Currency Transaction Report (CTR) to FinCEN, an arm of the Treasury Department.
How to avoid paying taxes on savings bonds?
Normally, the interest you earn on your savings bonds becomes part of your gross income for tax purposes. Under certain conditions, though, you can avoid taxes on the interest by using it to pay for higher education.
2024 is 'a good time to hold bonds'
Investment advisers say now is a fine time for bonds. They are a good investment in 2024, experts say, for the same reasons they felt like a bad investment in 2022.
Interest income from Treasury bills, notes and bonds - This interest is subject to federal income tax but is exempt from all state and local income taxes.
I savings bonds earn interest monthly. Interest is compounded semiannually, meaning that every 6 months we apply the bond's interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous 6 months.
Savings bond interest is exempt from state and local income tax. Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first.