Do I pay taxes on savings bonds when I cash them?

Yes, you pay federal income tax on the interest earned when you cash U.S. savings bonds. The interest is taxed as ordinary income. The principal (amount you paid) is not taxed. Savings bond interest is exempt from state and local taxes.

Reporting the Interest:

You report interest in the year you cash the bond (cash method), or you can elect to report it annually as it accrues (accrual method). Most taxpayers use the cash method.

You'll receive Form 1099-INT showing the total interest earned. Report this on your Form 1040.

Education Tax Exclusion:

You can exclude savings bond interest from taxes if you meet all these requirements:

• Series EE bonds issued after 1989 or Series I bonds
• You were at least 24 years old when the bond was issued
• Bond issued in your name (or jointly with spouse)
• Proceeds used for qualified higher education expenses (tuition and fees) in the redemption year
• Your MAGI falls below annual income limits

For 2025, phase-out ranges are $149,250-$164,250 (married filing jointly) and $99,500-$114,500 (other filers).

File Form 8815 to claim this exclusion.

Inherited Bonds:

If the deceased used the cash method, you can either:

• Report all interest on the deceased's final return, or
• Report all interest when you cash the bonds

Updated 2026 Education Exclusion Limits