Savings Bond Redemption Tax Calculator
Savings bond interest is federally taxable but state-tax-exempt. You can defer all tax until redemption (cash method) or report accrued interest annually (accrual method). Education Exclusion (Form 8815) allows tax-free redemption for qualified education expenses when MAGI is below 2026 limits.
Cash vs Accrual Method
Cash method (default): no tax owed until bond is redeemed — full interest taxable in year of redemption. Accrual method: report accrued interest annually on Schedule B. Once you choose accrual, you must use it for all current and future bonds. Switching back requires IRS Form 3115 plus 4-year amortization. Most savers stick with cash method for the deferral benefit.
Education Exclusion Rules
Series EE bonds issued after 1989 and Series I bonds can be redeemed federal-tax-free for qualified education expenses (tuition, fees, books, room/board) when used for owner, spouse, or dependent. Bond owner must be 24+ at issuance. MAGI phase-out 2026: $99,500-$114,500 single, $149,250-$179,250 MFJ. File Form 8815. Cannot also claim American Opportunity Credit on same expenses (double benefit prohibited).
State Tax Exempt Forever
Savings bonds are federal-only — never state or local tax. Worth significantly in high-tax states (CA 13.3%, NY 10.9%, NJ 10.75%). Comparison: $50K bond accruing $25K interest over 20 years saves $3,300 in CA state tax vs corporate bonds with same interest. Combined with deferral and education exclusion, savings bonds quietly beat most CD ladders for tax-aware investors.
Source: TreasuryDirect.gov, IRS Publication 550 (Investment Income), Form 8815 instructions. Last updated: May 2026.