The interest on qualified U.S. Savings Bonds is excluded from income when the savings bonds are redeemed to pay for qualified higher education expenses. The interest on U.S. Savings Bonds is not subject to state or local income tax.
Taxpayers cannot double dip. Taxpayers cannot use the same expenses to justify both the exclusion from income for U.S. Savings Bonds and another education tax benefit, such as a tax-free distribution from a college savings plan, scholarships, military student aid, tax-free tuition waivers, employer educational assistance, the American Opportunity Tax Credit, the lifetime learning tax credit or the tuition & fees deduction.
Interest on Series EE U.S. Savings Bonds issued on or after 1/1/1990 and all Series I U.S. Savings Bonds are eligible for the exclusion from income. Series H and HH U.S. Savings Bonds and bonds issued before 1990 are not eligible.
Series EE U.S. Savings Bonds earn a fixed rate of interest. The interest rate on new Series EE U.S. Savings Bonds is set on May 1 and November 1. Series EE U.S. Savings Bonds purchased from May 1997 to April 2005 had a variable interest rate based on 90% of the six-month average of 5-year Treasury yields. Series I U.S. Savings Bonds combine a fixed interest rate with an inflationary adjustment that changes twice a year based on CPI-U. Series EE and Series I U.S. Savings Bonds earn interest for up to 30 years.
The U.S. Savings Bonds must be owned by the taxpayer or co-owned by the taxpayer and the taxpayer’s spouse. U.S. Savings Bonds that are owned or co-owned by the taxpayer’s dependent are not eligible for the interest exclusion. (The dependent may be designated as a beneficiary on the bonds, however.)
If the U.S. Savings Bonds were registered in the name of the taxpayer’s dependent, but the funds used to purchase the bonds were provided by the taxpayer, the bonds may be reissued with the taxpayer listed as the owner to qualify for the interest exclusion. File form PD F 4000 E to have paper U.S. Savings Bonds reissued. For bonds purchased through TreasuryDirect, bond owners can correct the registration directly, unless the bonds are held in a minor linked account, in which case the bond owner will have to file form PD F 5446 from within the account. Otherwise, bonds owned by a child will be taxed at the child’s rate, which may offer some tax savings.
The purchaser must have been age 24 or older when the bond was issued. The issue date is the first day of the month in which the bond is purchased.
To be eligible for the exclusion from income, the proceeds from the redemption of U.S. Savings Bonds must be spent either on qualified higher education expenses or rolled over into a 529 college savings plan, prepaid tuition plan or Coverdell education savings account. If the amount redeemed exceeds the qualified higher education expenses for the year and is not contributed to a 529 college savings plan, prepaid tuition plan or Coverdell education savings account, the interest on the excess is not eligible for the exclusion from income.
Qualified higher education expenses are limited to tuition and fees for the taxpayer, the taxpayer’s spouse and the taxpayer’s dependents. Room, board, books and supplies are not eligible. Courses involving sports, games and hobbies are also not eligible unless they are part of a degree or certificate program. The tuition and fees must be for courses at a college or university that is eligible for Title IV federal student aid.
The U.S. Savings Bonds must be redeemed during the same year in which the qualified higher education expenses are incurred.
The exclusion from income for interest on U.S. Savings Bonds used for education phases out for taxpayers who file federal income tax returns as single filers or as married filing jointly. Married taxpayers who file separate returns are ineligible. The income phaseouts are adjusted annually according to inflation (CPI-U) since 1989, rounded to the nearest multiple of $50, as is illustrated by this table.
|Tax Year||Single Filers||Married Filing Jointly|
|2015||$77,200 to $92,200||$115,750 to $145,750|
|2014||$76,000 to $91,000||$113,950 to $143,950|
|2013||$74,700 to $89,700||$112,050 to $142,050|
|2012||$72,850 to $87,850||$109,250 to $139,250|
|2011||$71,100 to $86,100||$106,650 to $136,650|
|2010||$70,100 to $85,100||$105,100 to $135,100|
|2009||$69,950 to $84,950||$104,900 to $134,900|
|2008||$67,100 to $82,100||$100,650 to $130,650|
|2007||$65,600 to $80,600||$98,400 to $128,400|
|2006||$63,100 to $78,100||$94,700 to $124,700|
|2005||$61,200 to $76,200||$91,850 to $121,850|
|2004||$59,850 to $74,850||$89,750 to $119,750|
|2003||$58,500 to $73,500||$87,750 to $117,750|
|2002||$57,600 to $72,600||$86,400 to $116,400|
|2001||$55,750 to $70,750||$83,650 to $113,650|
|2000||$54,100 to $69,100||$81,100 to $111,100|
|1999||$53,100 to $68,100||$79,650 to $109,650|
|1998||$52,250 to $67,250||$78,350 to $108,350|
|1997||$50,850 to $65,850||$76,250 to $106,250|
|1996||$49,450 to $64,450||$74,200 to $104,200|
|1995||$48,100 to $63,100||$72,150 to $102,150|
|1994||$46,900 to $61,900||$70,350 to $100,350|
|1993||$45,500 to $60,500||$68,250 to $98,250|
|1992||$44,150 to $59,150||$66,200 to $96,200|
|1991||$41,950 to $56,950||$62,900 to $92,900|
|1990||$40,000 to $55,000||$60,000 to $90,000|
The income phaseouts shown for 1993, 1994 and 1995 are the income phaseouts after they were retroactively increased in 1996.
Bypassing the income phaseouts: If the taxpayer is likely to have income exceeding the income phaseouts when the student is enrolled in college, but currently has income below the income phaseouts, it may be advisable to redeem the U.S. Savings Bonds now to roll the proceeds into a 529 college savings plan, prepaid tuition plan or Coverdell education savings account. There are no income phaseouts on tax-free distributions from 529 college savings plans, prepaid tuition plans and Coverdell education savings accounts.
The legislation authorizing the exclusion from income for interest on U.S. Savings Bonds does not expire.
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