How to Reduce Taxes on Savings Bond Interest: Timing, Reporting Election and Exclusions

No rule lets an owner avoid federal income tax on most savings bond interest, but 4 IRS rules change when or whether that interest is taxed.

Those 4 rules, set out in IRS Publication 550 (2025), are the cashing year (Method 1), the yearly reporting election (Method 2), the education exclusion (Form 8815) and the final-return election. Two more apply on their own: the state and local exemption (31 U.S.C. 3124(a)) and the child-as-only-owner rule.

Apart from the education exclusion, no rule removes federal tax on interest that is already reportable. ClaimMyBonds is a private site, not the IRS or Treasury, and gives no tax advice. The wider picture, federal yes and state no, is in our guide to federal tax on savings bond interest.

What Lowers or Postpones the Tax on Savings Bond Interest: 6 Rules at a Glance

Six rules lower, postpone or shift the tax on savings bond interest, and only the education exclusion removes federal tax. The amount taxed is the bond's redemption value, what Treasury pays if the bond is cashed, minus the purchase price.

A paper Series EE bond costs half of its face value, and a paper Series I bond costs the full face value (IRS Publication 550 (2025)). Series I follows the Series EE tax rules (31 CFR Part 359, Appendix D).

Sources: 26 CFR 1.454-1(a)(1); 26 U.S.C. 135, 454; Form 8815 (2025); IRS Publications 550 and 559 (2025); 31 U.S.C. 3124(a).

Timing: Deferring Savings Bond Interest to the Year You Cash the Bond (Method 1)

Method 1, the default, defers savings bond interest to the year the bond is cashed, disposed of or reaches final maturity, whichever comes first.

Final maturity is the date a bond stops earning interest (26 CFR 1.454-1(a)(1)). Owners who never chose yearly reporting are on Method 1; accrual-method taxpayers, usually businesses that report income as it is earned, must report yearly.

A bond cashed on December 31 counts for that year, and a bond cashed one day later counts for the next. The deferral has a limit, set by final maturity.

Final Maturity Ends the Deferral, Cashed or Not

Final maturity ends the deferral: the interest becomes reportable in the final-maturity year even if nobody cashes the bond (26 CFR 1.454-1(a)(1)). Series EE and I bonds earn interest for 30 years (31 CFR 351.5, 359.5). EE bonds issued December 1996 stop on December 1, 2026.

Older series have nothing left to defer: every Series E bond stopped earning by June 2010, every Series H bond by December 2009 and every Series HH bond in August 2024. For a bond past final maturity, the year the rule names is that earlier year.

The sources behind this page do not cover interest never reported in that year; ask a tax professional. Our guide to when savings bonds stop earning interest lists final maturity by series.

Note 1: EE issued December 1996 stop December 1, 2026, 1997 issues stop during 2027 and the last paper EE stops December 2041. Note 2: HH bonds dated 2004 carried deferred interest reportable for 2024. Sources: 31 CFR 351.5, 359.5, 316.8(b), 332.8; TreasuryDirect; Fiscal Data Value Files (November 2026).

December 1996 or January 1997: One Issue Month, Two Tax Years

A $100 paper EE bond issued in December 1996 and one issued in January 1997 both pay $126.60 in November 2026, yet their interest falls in different tax years.

Each cost $50.00. The December 1996 bond reaches final maturity on December 1, 2026, worth $128.64 ($78.64 of interest), so it belongs to tax year 2026 whether or not anyone cashes it.

The January 1997 bond reaches final maturity on January 1, 2027. Cashed in November or December 2026, it pays $126.60 and $76.60 of interest counts for 2026. Held into January 2027, it is worth $128.64 and $78.64 counts for 2027, cashed or not.

A $1,000 bond issued January 1997 follows the pattern: $1,266.00 in November 2026 and $1,286.40 from January 1, 2027 (interest $766.00 and $786.40 on $500.00). A tax professional decides which year suits a return.

The table compares the two issue months.

Note 1: final maturity December 1, 2026; interest $78.64 on a $50.00 cost. Note 2: final maturity January 1, 2027; interest $76.60 if cashed in 2026, $78.64 from January 1, 2027. Source: Bureau of the Fiscal Service, Savings Bonds Value Files (Fiscal Data), updated November 2, 2026; tax year per 26 CFR 1.454-1(a)(1), Method 1.

Spreading Several Bonds Across Tax Years

Several paper bonds can be cashed across several tax years, because each bond's interest is reportable for the year that bond is cashed, unless its final maturity comes first (26 CFR 1.454-1(a)(1)).

TreasuryDirect says a paper bond is cashed for its full value, while an electronic bond can be cashed in part, in amounts of at least $25, leaving at least $25 (TreasuryDirect cashing page).

Two limits apply. A bond issued February 2003 or later must be held 12 months (6 months for bonds issued January 2003 or earlier) (31 CFR 351.6, 359.6).

Cashing before 5 years costs 3 months of interest for all I bonds and for EE bonds issued May 1997 or later (31 CFR 351.31, 351.51(b), 359.7). No paper EE bond is under 5 years old. Our guide to when you can cash savings bonds has the detail.

The Reporting Election: Reporting Savings Bond Interest Annually (Method 2)

The reporting election, Method 2, reports each year's increase in a savings bond's redemption value as interest for that year (26 U.S.C. 454(a); IRS Publication 550 (2025)). The statute is 26 U.S.C. 454.

Method 2 spreads the interest over the years held. An owner makes the election by reporting the increase on the return; an owner who wants to defer savings bond interest stays on Method 1.

What the Election Covers and When the Increase Counts

The election covers every Series EE, E and I bond the owner holds and later acquires, never one bond at a time (26 U.S.C. 454(a)). It does not carry over to a transferee, the person who receives a bond from the owner (26 CFR 1.454-1(a)(1)).

An increase counts on the date the redemption price changes, not evenly across the year (26 CFR 1.454-1(a)(2)). EE bonds issued May 1995 to April 1997 change value every 6 months. The last increase on a $100 EE bond issued January 1997, from $126.60 to $128.64, falls on January 1, 2027 (Value Files, November 2026).

Switching Between Method 1 and Method 2

Switching from Method 1 to Method 2 needs no IRS permission, while switching back needs a statement headed "131" or Form 3115 (IRS Publication 550 (2025)).

• Method 1 to Method 2: all accrued, unreported interest goes on the return for the year of the change.
• Method 2 to Method 1: automatic consent through a "131" statement attached to a timely filed return, or Form 3115, with no user fee.

A Child as the Only Owner: Yearly Reporting on the Child's Return

Interest on a bond registered to a child as the only owner is the child's income, even if a parent paid for the bond and is its beneficiary (IRS Publication 550 (2025), Table 1-2). Our page on a savings bond in a child's name covers cashing.

The child or a parent may choose yearly reporting by filing a return that shows all interest to date. Form 8615 applies above $2,700 of unearned income in 2025, with other conditions. With two owners, the co-owner who paid reports the interest.

Why Yearly Reporting Can Shrink a Later Education Exclusion

Interest reported under Method 2 cannot be excluded a second time, because the line 6 worksheet on Form 8815 subtracts interest reported in earlier years (Form 8815 (2025)).

The 1099-INT, the form that reports interest paid, still shows the lifetime interest. In an IRS Publication 550 (2025) example, a $1,000 EE bond issued March 2006 for $500 and cashed for $913.60 produces a 1099-INT showing $413.60.

An owner who reported the interest every year includes $7.20 and subtracts $406.40 as "U.S. Savings Bond Interest Previously Reported".

Exclusions: Tuition Use and the State and Local Exemption

Two exclusions keep savings bond interest out of tax. The education exclusion removes federal tax for qualifying owners; the state and local exemption applies to everyone, for state and local tax only.

Interest Used for Tuition: The Form 8815 Exclusion in 5 Tests

The education exclusion removes federal tax on interest from Series EE bonds issued after 1989 and Series I bonds cashed in a year the owner pays qualified higher education expenses (26 U.S.C. 135; Form 8815 (2025)). Our guide to the Education Savings Bond Program has the full steps; the 5 tests are below.

• Bond: Series EE issued after 1989, or Series I.
• Owner: 24 or older before the bond's issue date, with the bond in the owner's name or in the names of the owner and spouse.
• Expenses: tuition and required fees for the taxpayer, spouse or a dependent, or contributions to a 529 plan or a Coverdell education savings account; room and board do not count.
• Year: the bond is cashed in the same tax year the expenses are paid.
• Filing status and income: any status except married filing separately, with modified adjusted gross income (MAGI, the income figure the form uses) under the limit.

For tax year 2026 the exclusion phases out between $101,800 and $116,800 of MAGI for single, head of household and qualifying surviving spouse filers, and between $152,650 and $182,650 for joint filers (Rev. Proc. 2025-32, sec. 4.17). Bonds in a child's name never qualify, and Form 8815 figures the excluded amount.

No State or Local Income Tax, and the Old Series With No Federal Tax

Savings bond interest is exempt from state and local income tax by statute. The statute is 31 U.S.C. 3124(a), and it exempts the interest from state and local taxes except estate or inheritance taxes (and a corporate franchise tax). Federal estate, gift and excise taxes still apply (TreasuryDirect; 31 CFR Part 359, Appendix D).

Series A, B and C bonds, and Series D bonds issued through February 1941, also pay no federal income tax (TreasuryDirect). Every other series is federally taxable.

A Deceased Owner's Bonds: The Final-Return Election and the 691(c) Deduction

A surviving spouse or personal representative may report all of a deceased owner's deferred interest on the owner's final return. Without that election, the person who acquires the bond reports the pre-death interest as income in respect of a decedent, which is income the owner earned but never reported (IRS Publications 550 and 559 (2025)).

An IRS Publication 550 example shows the difference. A $1,000 EE bond bought for $500 had $200 of interest accrued at death. An heir who cashes it at $1,000 reports $500 of interest without the election and $300 with it.

The heir may deduct the federal estate tax paid on that interest (26 U.S.C. 691(c)). Our guide to taxes on inherited savings bonds has more.

What Does Not Avoid the Tax: Reissue, Gifts, Trusts, Divorce and Conversion

Six common moves do not remove the tax, and some bring it forward. A reissue is Treasury re-registering a bond in different names. Savings bonds cannot be sold, transferred or pledged (31 CFR 353.15, 353.16). The table lists the 6 moves.

Pub 550 is IRS Publication 550.

Reissuing a Bond to a Child or Grandchild Does Not Move the Interest

A reissue that removes the person who paid for the bond makes that person report all interest not yet reported, in the year of the reissue (IRS Publication 550 (2025)).

The tax notice in FS Form 4000 (Revised April 2026; the form, PDF, TreasuryDirect) says that the obligation to report the interest "cannot be transferred to someone else through a reissue transaction".

A reissue into the payer's own name alone is no tax event. A bond bought as a gift may have gift tax consequences (31 CFR Part 351, Appendix).

Reporting Savings Bond Interest After Choosing a Rule

Four steps follow once a rule is chosen.

• Check the interest with our savings bond calculator, built on Treasury's published value files.
• Cash the bond at a bank or by mail: how to cash savings bonds.
• Report box 3 of the Form 1099-INT for savings bonds, which is filed for $10 or more of interest.
• Claim a deceased owner's bonds: savings bonds after death.

Questions About Avoiding Taxes on Savings Bonds

Are savings bonds tax-free?

No: savings bond interest is free of state and local income tax but subject to federal income tax, except Series A to C and Series D issued through February 1941. The education exclusion can remove federal tax for owners who meet its 5 tests.

Do you have to pay tax on savings bonds?

Yes: federal income tax is due for the year the bond is cashed or reaches final maturity, whichever comes first, or yearly under the Method 2 election (26 U.S.C. 454).

How do I avoid taxes when cashing in savings bonds?

Cashing does not avoid the tax, but 3 choices affect it: the cashing year, the education exclusion and, for heirs, the final-return election.

Can I give savings bonds to my children to avoid the tax?

No: reissuing a bond to a child keeps the tax with the person who paid, for all interest up to the reissue (IRS Publication 550 (2025)). A bond bought in the child's name is the child's income. A reissue request uses FS Form 4000 reissue request.

Can I put savings bond money into a 529 plan tax-free?

Money from qualifying bonds, cashed and contributed to a 529 plan or Coverdell ESA in the same year, counts as a qualified expense for Form 8815, so the interest can be excluded from federal tax when all 5 tests are met. The Form 8815 education exclusion page lists the tests.

Does converting paper savings bonds to electronic postpone the tax?

No: converting a paper bond that still earns interest is not a taxable event. The deferral still ends at final maturity. A bond that no longer earns interest is cashed on conversion. See converting paper savings bonds to electronic.

What is a US savings bond EE?

A Series EE bond is a US savings bond sold at a discount that earns interest for 30 years. Paper EE bonds were issued January 1980 to December 2011: see Series EE savings bonds.

What is the tax rate on savings bond interest?

IRS Publication 550 (2025) treats savings bond interest as taxable interest on Form 1040 or 1040-SR line 2b, so the federal tax depends on the whole return.

Cashing the Bond in the Year You Choose

The rules take effect in the year the bond is cashed or reaches final maturity, so the cashing date is the practical decision. Paper bonds are cashed at a bank, or by mail with FS Form 1522 (Revised April 2026).

Banks may cash paper bonds but are not required to (FS Publication 0022, Rev. October 2022). Treasury charges no fee, and the form is free.