U.S. Savings Bond Adjustment
Candlefocus EditorWhen it comes to taxation, the IRS requires taxpayers to report the full amount of interest received on the bonds, even if the rate changes throughout the year. For instance, if a taxpayer purchased a US Savings Bond in March with a fixed interest rate of 3%, then the taxpayer would need to report the interest income for the full 12 months at the 3% rate even if it was lowered in June or raised in December, due to a rate adjustment. Because the interest rate on savings bonds can change without notice, the U.S. Savings Bond Adjustment seeks to ensure that the correct amount of interest income is reported to the IRS and accurately taxed.
In addition to federal taxes, US Savings Bonds are subject to gift, estate, and excise taxes at the state level for estates or inheritances. However, the interest received from EE U.S. savings bonds is not subject to taxation at either the state or local level for income.
By understanding the U.S. Savings Bond Adjustment, taxpayers can ensure they are accurately reporting their interest income to the IRS and that they are not paying any additional tax on their savings bonds.