How I Bond Interest Is Taxed: Federal Only

I bond interest is subject to federal income tax and exempt from state and local income tax¹. Report it when the bond is cashed or reaches final maturity, or elect to report it annually.

The I bond calculator estimates interest but computes no tax. This page covers the federal rules that decide when that interest becomes taxable and to whom.

Which taxes apply

TreasuryDirect states that interest on EE and I bonds is “subject to federal income tax, but not state or local income tax.” The same page adds that the interest is subject to “any federal estate, gift, and excise taxes and any state estate or inheritance taxes.”

The state and local exemption is a feature of the security itself, not of your residence. It does not depend on which state you live in and does not extend to state estate or inheritance tax.

Two ways to report the interest

The IRS describes the default in Topic 403: “you generally won’t include interest on Series EE and Series I U.S. savings bonds until the earlier of when the bonds mature or when they’re redeemed or disposed of.”

The alternative is the annual election. TreasuryDirect describes it as choosing to “report the interest each year even though you don’t actually get the interest then.” IRS Topic 403 points to Publication 550 for how the election is made and what it covers.

If you do nothing	If you elect annual reporting
Interest is reported in the year of redemption or final maturity, whichever is earlier	Interest is reported each year as it accrues
One large amount in a single tax year	Small amounts spread across many years
A 1099-INT arrives for the year you cash the bond	No 1099-INT until the bond is cashed

Final maturity matters here even if you never touch the bond. An I bond stops earning interest 30 years² after its issue date, and that year is the deferral’s end point. The redemption timing rules set out the dates involved.

The 1099-INT

A Form 1099-INT is issued for the year you actually receive the interest. For bonds held in TreasuryDirect, “your 1099-INT is available in your account by January 31 of the following year,” under Manage My Taxes in ManageDirect. For a paper bond cashed at a bank, the form is mailed the following January.

The education exclusion

Interest from Series EE and I bonds “issued after 1989” can be excluded from federal income when it pays qualified higher education expenses in the same year. TreasuryDirect lists the conditions, and each one is a hard gate.

• The bond must be registered with you as owner, or with you and your spouse as owners.
• “The owner of the bond must be 24 years or older when the bond is issued.”
• The expenses must be for you, your spouse, or a dependent listed on your federal return.
• You must file with “any status EXCEPT married filing separately.”
• Your modified adjusted gross income must be under the year’s cut-off, which changes annually.

2026 filing status	Modified AGI phase-out range
Married filing jointly	$152,650–$182,6503
Single, head of household, qualifying surviving spouse	$101,800–$116,8004
Married filing separately	Not eligible at any income

Within the range the excludable amount is reduced; above the top of the range it is zero. The 2026 figures come from Rev. Proc. 2025-32 §4.17 and should be confirmed against the 2026 revision of Form 8815 when the IRS releases it. The exclusion is computed on Form 8815 and carried to Schedule B of Form 1040.

The age condition catches many people. A bond bought in a child’s name does not qualify, because the owner was not 24 or older at issue.

Do I pay state tax on I bond interest?

No. I bond interest is exempt from state and local income tax in every state. It remains subject to federal income tax and can be subject to state estate or inheritance tax.

When do I pay tax on I bond interest?

In the year the bond is redeemed or reaches final maturity, whichever comes first, unless you elected to report interest annually. Nothing is due while the bond is held and the deferral applies.

Can I use I bonds tax-free for college?

Only if every condition of the Education Savings Bond Program is met, including that the bond owner was 24 or older when the bond was issued. The exclusion is claimed on Form 8815 and phases out over a modified AGI range that the IRS sets each year.

Does married filing separately qualify for the education exclusion?

No. TreasuryDirect states the exclusion requires filing “with any status EXCEPT married filing separately.” There is no income at which married filing separately qualifies.

Will I get a 1099-INT for my I bonds?

Yes, for the year you cash them. For bonds in TreasuryDirect the form is available in your account by January 31 of the following year; for paper bonds cashed at a bank the form is mailed the following January.

Can cashing I bonds create an estimated tax payment?

It can, because deferred interest lands in a single tax year with no withholding attached. The estimated tax safe harbor sets out the thresholds that decide whether a payment is required.