Ask the Expert: How are savings bonds taxed for education?
I'm planning to give my grandson 30-year EE matured bonds for his college education. I understand that no taxes need to be paid when they're cashed if they're used for education. They're in my name and my daughter's name. Some list her Social Security number, others list mine. Is it incumbent on the one whose Social Security number is listed to report cashing the bonds on her tax return?
The person who bought the bond is responsible for reporting and paying taxes on the interest, no matter whose Social Security number is listed. If your daughter shared the cost, you should each report your respective shares of the interest.
You'll receive a Form 1099 stating the amount of interest paid on the cashed bonds. On your tax return, report the amount on the 1099. Then if you’re co-owners, subtract the portion attributable to the other owner, writing in her name and Social Security number.
Here are the education tax exclusion eligibility rules:
The EE bonds must be issued after 1989 to someone age 24 or older who is responsible for the college tuition.
You get the exclusion on all the bond interest if you have modified adjusted gross income (MAGI) of up to $128,650 (married, filing jointly) or up to $85,800 (single filers). For this calculation, your MAGI includes the savings bond interest you're hoping ultimately to exclude.
Above those amounts, eligibility phases out. It disappears if your MAGI is $158,650 or higher (joint filers) or $100,800 or higher (single filers).
The money must be spent on college tuition in the same year the bonds are redeemed. It can't be used for books or for room and board.
The bottom line
The person who paid for U.S. savings bonds is responsible for reporting the interest they earn.
