Series EE Savings Bond - Taxation Question

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ceejay185
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Series EE Savings Bond - Taxation Question

Post by ceejay185 »

I have a large amount of EE Bonds issued in December 1992 that mature this December. Have not been declaring annual interest for taxes, so it will all be taxed at maturity.

Since December 31, 2022 falls on a Saturday (plus the issue of T1 or T2 settlement), my question is will the proceeds at maturity be considered a 2022 or 2023 taxable event?

Main reason for asking this question is that if all the proceeds are taxed in 2022, this will move my MAGI to the second IRMAA bracket for Medicare purposes.

If the taxation is considered a 2023 event, I would cash out half the proceeds in 2022 to avoid the IRMAA impact.
Jack FFR1846
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Re: Series EE Savings Bond - Taxation Question

Post by Jack FFR1846 »

Are these paper bonds or electronic? If they're paper, just wait until January 2nd and then bring them to where you're going to cash them. They will then be taxed for 2023. Or if you can, break them up. Cash a little in 22, some in 23 and some later than that.
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Topic Author
ceejay185
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Re: Series EE Savings Bond - Taxation Question

Post by ceejay185 »

Good point! These were converted to electronic several years ago.
Nutmeg
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Re: Series EE Savings Bond - Taxation Question

Post by Nutmeg »

Whether the bonds are paper or electronic, and regardless of when you redeem them, the interest is taxable at maturity if not before.

If you redeem paper bonds in 2023, the bank will probably issue you a 2023 tax form for the interest, but that doesn’t change the fact that the bonds matured in 2022, and therefore must be declared on 2022 taxes. The last phrase in the quote below is applicable here.

Source: https://www.treasurydirect.gov/indiv/re ... nsider.htm
When must I report the interest on my tax form?

You have a choice. You can

report the interest every year
put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
you cash the bond and receive what the bond is worth, including the interest, or
you give up ownership of the bond and the bond is reissued, or
the bonds stops earning interest because it has reached final maturity
Last edited by Nutmeg on Fri Aug 12, 2022 9:47 pm, edited 1 time in total.
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samsoes
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Re: Series EE Savings Bond - Taxation Question

Post by samsoes »

Jack FFR1846 wrote: Fri Aug 12, 2022 9:21 pm Are these paper bonds or electronic? If they're paper, just wait until January 2nd and then bring them to where you're going to cash them. They will then be taxed for 2023. Or if you can, break them up. Cash a little in 22, some in 23 and some later than that.
This isn't correct.

It doesn't matter when maturing bonds are actually redeemed. Interest income is required to be reported in the calendar year of maturity, redeemed or not.

If they are electronic, Treasury Direct will redeem them for you automatically when they mature on Dec 1 (not the 31st).
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Topic Author
ceejay185
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Re: Series EE Savings Bond - Taxation Question

Post by ceejay185 »

If Treasury Direct redeems them on Dec 1, that definitely settles the taxation issue! I'll be on the watch out for that. Thanks...
cubs1999
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Re: Series EE Savings Bond - Taxation Question

Post by cubs1999 »

Nutmeg wrote: Fri Aug 12, 2022 9:28 pm Whether the bonds are paper or electronic, and regardless of when you redeem them, the interest is taxable at maturity if not before.

If you redeem paper bonds in 2023, the bank will probably issue you a 2023 tax form for the interest, but that doesn’t change the fact that the bonds matured in 2022, and therefore must be declared on 2022 taxes. The last phrase in the quote below is applicable here.

Source: https://www.treasurydirect.gov/indiv/re ... nsider.htm
When must I report the interest on my tax form?

You have a choice. You can

report the interest every year
put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
you cash the bond and receive what the bond is worth, including the interest, or
you give up ownership of the bond and the bond is reissued, or
the bonds stops earning interest because it has reached final maturity
I found a small amount of EE bonds (few hundred bucks) that matured various years in the past. Didn't even know I had them. I'm supposed to file amended returns for like 6 different years? It sounds like it in which case it seems like I should just not bother cashing them in if I have to pay my account to amend all those returns.
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Re: Series EE Savings Bond - Taxation Question

Post by Gill »

ceejay185 wrote: Fri Aug 12, 2022 9:47 pm If Treasury Direct redeems them on Dec 1, that definitely settles the taxation issue! I'll be on the watch out for that. Thanks...
There is no “taxation issue”. The interest is taxable in 2022.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Re: Series EE Savings Bond - Taxation Question

Post by Gill »

Jack FFR1846 wrote: Fri Aug 12, 2022 9:21 pm Are these paper bonds or electronic? If they're paper, just wait until January 2nd and then bring them to where you're going to cash them. They will then be taxed for 2023. Or if you can, break them up. Cash a little in 22, some in 23 and some later than that.
This advice is incorrect.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Chardo
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Re: Series EE Savings Bond - Taxation Question

Post by Chardo »

cubs1999 wrote: Fri Aug 12, 2022 11:32 pm
Nutmeg wrote: Fri Aug 12, 2022 9:28 pm Whether the bonds are paper or electronic, and regardless of when you redeem them, the interest is taxable at maturity if not before.

If you redeem paper bonds in 2023, the bank will probably issue you a 2023 tax form for the interest, but that doesn’t change the fact that the bonds matured in 2022, and therefore must be declared on 2022 taxes. The last phrase in the quote below is applicable here.

Source: https://www.treasurydirect.gov/indiv/re ... nsider.htm
When must I report the interest on my tax form?

You have a choice. You can

report the interest every year
put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
you cash the bond and receive what the bond is worth, including the interest, or
you give up ownership of the bond and the bond is reissued, or
the bonds stops earning interest because it has reached final maturity
I found a small amount of EE bonds (few hundred bucks) that matured various years in the past. Didn't even know I had them. I'm supposed to file amended returns for like 6 different years? It sounds like it in which case it seems like I should just not bother cashing them in if I have to pay my account to amend all those returns.
I'm in the same boat. I just assumed they would be taxable when redeemed. Now I'm worried.
Gill
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Re: Series EE Savings Bond - Taxation Question

Post by Gill »

A basic principle of tax law is that income is taxable to you when you have the right to receive it. You can't defer income by simply not taking it into your possession. A simple example is interest on a savings account. When the interest is credited on 12/31 it is taxable to you in that year even though you might leave it with the bank. The same principle applies to matured savings bonds.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Jack FFR1846
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Re: Series EE Savings Bond - Taxation Question

Post by Jack FFR1846 »

So what should be done later when lots and lots of bonds were never cashed? Then the owner dies. The bonds are sitting in a safe deposit box and the "old country" behavior is to always "hide everything from the government". The aunt inherits all of these and sits on them. The aunt dies. Now DW is the executor. The newest bond is close to 40 years old with some of them going back to over 80 years ago. Nobody knows anything about past grandparent tax returns. Sure, they should have cashed them decades ago, but they didn't. I'll tell you what we're doing. DW is executor and I helped her do the cashing, sending the proper forms to treasury direct with the proceeds deposited into the estate account. We will report the interest in the 2022 tax return.

I would expect that if there were some way to go back and file amended returns, the tax would actually be far less as the bonds were purchased nearly every year from 1941 to the 80's. But with zero knowledge about prior returns, that is completely impractical. These were, of course all paper bonds. The IRS wants their money. I would expect that they 100% would tell us to do exactly what's planned.

Also, what happens with e bonds when cashed? Does TD send any kind of notice? I hear that they don't even send a 1099. You have to go on the site and search for it. It's one of the things I like about paper bonds. I cash them at my credit union and my 1099 from the credit union has the box labeled "savings bond interest" filled in with a number. And that's both mailed to me as paper and in my credit union account where I can easily find it in "tax documents". With my own bonds (I have well over $400k in paper), I will absolutely cash them before maturity. Well, except the ones in our kids names as co-owners. We'll likely just give them to the kids at some point.
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Gill
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Re: Series EE Savings Bond - Taxation Question

Post by Gill »

Jack FFR1846 wrote: Sat Aug 13, 2022 6:39 am So what should be done later when lots and lots of bonds were never cashed? Then the owner dies. The bonds are sitting in a safe deposit box and the "old country" behavior is to always "hide everything from the government". The aunt inherits all of these and sits on them. The aunt dies. Now DW is the executor. The newest bond is close to 40 years old with some of them going back to over 80 years ago. Nobody knows anything about past grandparent tax returns. Sure, they should have cashed them decades ago, but they didn't. I'll tell you what we're doing. DW is executor and I helped her do the cashing, sending the proper forms to treasury direct with the proceeds deposited into the estate account. We will report the interest in the 2022 tax return.

I would expect that if there were some way to go back and file amended returns, the tax would actually be far less as the bonds were purchased nearly every year from 1941 to the 80's. But with zero knowledge about prior returns, that is completely impractical. These were, of course all paper bonds. The IRS wants their money. I would expect that they 100% would tell us to do exactly what's planned.

Also, what happens with e bonds when cashed? Does TD send any kind of notice? I hear that they don't even send a 1099. You have to go on the site and search for it. It's one of the things I like about paper bonds. I cash them at my credit union and my 1099 from the credit union has the box labeled "savings bond interest" filled in with a number. And that's both mailed to me as paper and in my credit union account where I can easily find it in "tax documents". With my own bonds (I have well over $400k in paper), I will absolutely cash them before maturity. Well, except the ones in our kids names as co-owners. We'll likely just give them to the kids at some point.
I don’t disagree. None of this negates the fact that the interest is taxable in the year the bond matures. Your earlier post suggested manipulating this by electing to receive the proceeds in the year of your choice. That you can’t do.
Gill
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eddot98
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Re: Series EE Savings Bond - Taxation Question

Post by eddot98 »

I cashed our last remaining paper EE bonds in March of this year. Maturity dates were between 2016 and 2018 and the total interest was $2440. I was ignorant of the requirement of reporting the interest in the year of maturity until around 2020 and we all know what happened then.
I suppose that I could file amended returns for those 3 years, but I doubt that I will do that. Our marginal Federal tax rates would be the same in all 4 years (2016, 2017, 2018, and 2022), so what would be the point? A lot of work for us and the IRS for no net change in our taxes.
While I don’t relish being a scofflaw, I doubt that we will ever get in trouble for this oversight.
2cents2
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Re: Series EE Savings Bond - Taxation Question

Post by 2cents2 »

ceejay185 wrote: Fri Aug 12, 2022 9:24 pm Good point! These were converted to electronic several years ago.
On Dec 1 you will receive an email from TD telling you that your bonds were automatically redeemed and put into a Zero-Percent Certificate of Indebtedness which doesn't earn any more interest. You can leave the proceeds alone (and earn no more interest), transfer to the account you have linked to TD or reinvest in another TD product.

You will note under the "Manage Direct" tab, "Manage My Taxes" subcategory there will be a link to Year 2022.
There, you will find the "Taxable Transaction(s) Summary" and all the transactions that will go into your 2022 1099-INT. (The link for your 2022 1099-INT will appear at the top of the listed transactions sometime in Jan 2023).
Note: you have to log back in to TD in order to print out your 2022 1099-INT because they do not mail them to you.

Are there any other taxable distributions you can delay taking until the new year? Like wait to take a distribution from your tIRA until Jan?
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HueyLD
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Re: Series EE Savings Bond - Taxation Question

Post by HueyLD »

Chardo wrote: Sat Aug 13, 2022 6:22 am
cubs1999 wrote: Fri Aug 12, 2022 11:32 pm
Nutmeg wrote: Fri Aug 12, 2022 9:28 pm Whether the bonds are paper or electronic, and regardless of when you redeem them, the interest is taxable at maturity if not before.

If you redeem paper bonds in 2023, the bank will probably issue you a 2023 tax form for the interest, but that doesn’t change the fact that the bonds matured in 2022, and therefore must be declared on 2022 taxes. The last phrase in the quote below is applicable here.

Source: https://www.treasurydirect.gov/indiv/re ... nsider.htm
When must I report the interest on my tax form?

You have a choice. You can

report the interest every year
put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
you cash the bond and receive what the bond is worth, including the interest, or
you give up ownership of the bond and the bond is reissued, or
the bonds stops earning interest because it has reached final maturity
I found a small amount of EE bonds (few hundred bucks) that matured various years in the past. Didn't even know I had them. I'm supposed to file amended returns for like 6 different years? It sounds like it in which case it seems like I should just not bother cashing them in if I have to pay my account to amend all those returns.
I'm in the same boat. I just assumed they would be taxable when redeemed. Now I'm worried.
I think the IRS will give you a break for not reporting interest on matured EE bonds you did not know that you had.

It is a problem for more people than one realizes.
chemocean
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Re: Series EE Savings Bond - Taxation Question

Post by chemocean »

2cents2 wrote: Sat Aug 13, 2022 10:41 am
ceejay185 wrote: Fri Aug 12, 2022 9:24 pm Good point! These were converted to electronic several years ago.
On Dec 1 you will receive an email from TD telling you that your bonds were automatically redeemed and put into a Zero-Percent Certificate of Indebtedness which doesn't earn any more interest. You can leave the proceeds alone (and earn no more interest), transfer to the account you have linked to TD or reinvest in another TD product.

You will note under the "Manage Direct" tab, "Manage My Taxes" subcategory there will be a link to Year 2022.
There, you will find the "Taxable Transaction(s) Summary" and all the transactions that will go into your 2022 1099-INT. (The link for your 2022 1099-INT will appear at the top of the listed transactions sometime in Jan 2023).
Note: you have to log back in to TD in order to print out your 2022 1099-INT because they do not mail them to you.

Are there any other taxable distributions you can delay taking until the new year? Like wait to take a distribution from your tIRA until Jan?
Thanks 2cents2,
I also have EE bonds dated Dec. 1992. It was my impression that that the last six-month interest payment will be made on Dec. 1 2022 and they matured on that date. I thought I had to execute a transaction in TD and didn't realize that the funds were automatically deposited into the COI account. I understand that you can withhold up to 50% of either the value of the bonds or the accrued interest. My plan is to take the maximum withholding to partially pay the taxes on my final 2022 Roth conversions.
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tuningfork
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Re: Series EE Savings Bond - Taxation Question

Post by tuningfork »

Jack FFR1846 wrote: Sat Aug 13, 2022 6:39 am Also, what happens with e bonds when cashed? Does TD send any kind of notice? I hear that they don't even send a 1099. You have to go on the site and search for it. It's one of the things I like about paper bonds. I cash them at my credit union and my 1099 from the credit union has the box labeled "savings bond interest" filled in with a number. And that's both mailed to me as paper and in my credit union account where I can easily find it in "tax documents". With my own bonds (I have well over $400k in paper), I will absolutely cash them before maturity. Well, except the ones in our kids names as co-owners. We'll likely just give them to the kids at some point.
Treasury Direct sends me an email on the first day of the month when one of my bonds matures. That's my reminder to login and transfer the proceeds to my bank. Of course I can cash one out before maturity if desired.

I'm pretty sure they send an email in January informing me that my 1099 is ready to download. Same as all my other financial institutions where I've selected paperless delivery of forms.
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Re: Series EE Savings Bond - Taxation Question

Post by Broken Man 1999 »

tuningfork wrote: Sat Aug 13, 2022 1:57 pm
Jack FFR1846 wrote: Sat Aug 13, 2022 6:39 am Also, what happens with e bonds when cashed? Does TD send any kind of notice? I hear that they don't even send a 1099. You have to go on the site and search for it. It's one of the things I like about paper bonds. I cash them at my credit union and my 1099 from the credit union has the box labeled "savings bond interest" filled in with a number. And that's both mailed to me as paper and in my credit union account where I can easily find it in "tax documents". With my own bonds (I have well over $400k in paper), I will absolutely cash them before maturity. Well, except the ones in our kids names as co-owners. We'll likely just give them to the kids at some point.
Treasury Direct sends me an email on the first day of the month when one of my bonds matures. That's my reminder to login and transfer the proceeds to my bank. Of course I can cash one out before maturity if desired.

I'm pretty sure they send an email in January informing me that my 1099 is ready to download. Same as all my other financial institutions where I've selected paperless delivery of forms.
Yes, a notification email is sent to alert you that a 1099 is available. I have paperless delivery of everything I am able.

Broken Man 1999
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enad
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Re: Series EE Savings Bond - Taxation Question

Post by enad »

what happens if you found a EE savings bond that has reached final maturity long after it did so? do you pay taxes on it now? or do you have to refile your taxes for the year they were due and hope the penalty is not that great? i.e. it was a good faith mistake.
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cubs1999
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Re: Series EE Savings Bond - Taxation Question

Post by cubs1999 »

enad wrote: Sat Aug 13, 2022 3:39 pm what happens if you found a EE savings bond that has reached final maturity long after it did so? do you pay taxes on it now? or do you have to refile your taxes for the year they were due and hope the penalty is not that great? i.e. it was a good faith mistake.
It appears that the proper way to do it would be to file amended returns for the year(s) the bond(s) matured.
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enad
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Re: Series EE Savings Bond - Taxation Question

Post by enad »

cubs1999 wrote: Sat Aug 13, 2022 6:05 pm
enad wrote: Sat Aug 13, 2022 3:39 pm what happens if you found a EE savings bond that has reached final maturity long after it did so? do you pay taxes on it now? or do you have to refile your taxes for the year they were due and hope the penalty is not that great? i.e. it was a good faith mistake.
It appears that the proper way to do it would be to file amended returns for the year(s) the bond(s) matured.
I was just going to declare the bond's interest on this years return and pay whatever taxes are due on it, but if I amend the return, perhaps I can attach a statement describing it as an "honest mistake" and ask for an "abatement" of any penalty. I have many more EE bonds reaching final maturity in a few years.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
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