I Bond Question-Interest Reporting?

md2121 | Aug 5, 2022 | 9 posts since 2022

It’s our understanding that interest can be reported annually, or in a lump sum when cashing I bonds in. We prefer to report interest annually. I am trying to get a handle on the I Bond interest amount we may need to report for tax year 2022.

We purchased a 10k I bond in December 2021. The then current rate was 7.12%. As I calculate we would earn approx. $60/month first 6 months. I’m assuming that the December 2021 interest would be counted in January 2022 as December 31 was holiday. So Dec 2021 interest thru May 2022 I’m guessing $360ish in interest. Starting in June 2022 the reset rate of 9.62% would kick in, meaning approx. $80 a month in interest, or $480ish interest for next 6 months. Part of my confusion is when I log into Treasury Direct, the current value of this Dec 2021 I Bond as of Aug 2 is $10296. I assume the difference between my math and theirs is a baked in penalty. Any thoughts on what I might end up reporting for 2022?

In addition to above 10k I Bond, we purchased some other I Bonds in 2022, including gift I Bonds. I’m assuming the 2022 gift I Bond interest gets included into yearly total?

I ask above because I’ve been withdrawing money from traditional IRA for tax reasons. It’s helpful to know before end of year on how much interest I may have to report as it influences how much money, if any, I may be able to withdraw from this IRA in 2022. Thanks.

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Answers

Choice | Aug 5, 2022 | 937 posts since 2020

I like what you are doing…don’t plan on myself taking interest annually (accrual method) but did it for my daughter years ago for paper bonds. Ibonds may seem a little sneaky…as I recall thefinancebuff.com as a thread on that and you should look there

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Dingdong | Aug 6, 2022 | 22 posts since 2021

I have a similar question. I've some ibonds sitting in my account since last few years and have accrued interest on it. I'm thinking to this year to gift them. Now who pays the taxes on the interest accrued? Is it me on the accrued interest until I gift them or the person recieving them when he decides to cash them?

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CuriousDave | Aug 6, 2022 | 233 posts since 2018

Treasury Direct’s site provides this information. If you have the bonds re-issued and name your donee (gift recipient) as owner, all interest accumulated through the date of ownership change is your taxable income and all subsequent interest belongs to your donee. In the year of ownership change you will need to report and will be taxed on all that accumulated interest, so you will have to find some other source for the cash you will need to come up with to pay the tax. After gifting by reissuing in the donee’s name, the donee now stands in your shoes and going forward can choose to defer reporting interest until redemption or report annually. If you do not reissue into the donee’s name you remain the owner for tax purposes and can therefore choose to continue to defer reporting the income until the earlier of the date you redeem or maturity of the bonds, or be taxed on all accumulated income and thereafter annually. Treasury Direct says that for the year of reissue all the accumulated interest for the full year will be reported to you on Form 1099-INT, so if you gifted (say) on March 31, on your personal tax return you will need to enter the full year’s income to match the 1099 form, then back out the interest attributable to the last 9 months of the year. The donee should be informed of that 9 month amount and will need to decide independently when to report that interest and all subsequent interest.

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CuriousDave | Aug 6, 2022 | 233 posts since 2018

Correction — TD does not allow the reissue of I Bonds as a gift from one living person to another. It does allow gifting by online transfer of the bonds if made from your TD account to someone else’s existing TD account. If your intended donee does not already have a personal TD account, (s)he will first need to open one before you can make the transfer. During the online transfer process, you may be one of the unlucky folks the TD randomly selects to complete a form requiring a medallion stamp for verification of ID, which can be a pain. If that happens, there is helpful detailed guidance on this issue on the site of I Bond guru Harry Sit: www.thefinancebuff.com

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