Tax Time for I Bonds: Reporting Interest and Navigating 1099s

The rush to purchase I bonds in 2022 led to a windfall for many investors, but now the tax bill is due. Here’s what you need to know about reporting interest income from I bonds and navigating the complexities of obtaining your 1099:

Interest Taxation:

• All interest income from I bonds is taxable as regular income, regardless of whether you’ve received a 1099 form.
• Failure to report this income on your tax return can result in penalties and interest charges, potentially offsetting any interest earned.

Obtaining Your 1099:

• The TreasuryDirect site provides access to your 1099 for I bond interest, but it requires navigating through the site.
• Look for the email titled “TreasuryDirect 1099 Statement Information” or follow the steps outlined in the instructional video provided by the Treasury Department.

Tax Owed on I Bonds:

• Interest on I bonds is subject to federal income tax at ordinary rates, with exemptions for state and local taxes.
• While there’s an option to pay taxes annually on the interest, most taxpayers prefer to defer taxes until redemption.

Withholding Taxes:

• You can choose to withhold taxes on future I bond redemptions, similar to paycheck withholding.
• Setting up voluntary withholding through the TreasuryDirect site allows you to specify a default withholding rate.

Navigating Tax Filing:

• If you’re feeling unprepared, consider requesting a tax filing extension and checking your IRS online account later.
• Your IRS account provides access to all 1099s issued to you, including those from gig jobs, student loan debt cancellations, or cryptocurrency bonuses.

Remember, it’s ultimately your responsibility as a taxpayer to accurately report all sources of income.