The Difference Between EE, HH, and I Savings Bonds

Clients frequently ask us about the tax effects of government savings bonds they have in their house or safe deposit box.  When this question comes up, it’s usually in the context of estate planning.  To give an appropriate answer, we need to gather some facts:

  • What type of bonds are they?
  • Who is the legal owner of the bonds?
  • When were the bonds issued and when do they mature?
  • What is the interest rate earned?

Government savings bonds can be E/EE, H/HH or I Bonds. When the bonds are redeemed, the interest is taxed as ordinary income for federal income tax.  There is no state income tax due on this interest.

E Savings Bonds were issued from 1941 to 1980.  The E Savings Bond was originally issued with a maturity of 10 years.  This was eventually changed to a maturity of 30 and 40 years.  These bonds were bought at a discount of 75%.  For example, a bond that would mature for $100 was purchased for $75.  All issues of E Bonds have matured and no longer pay interest.

EE Savings Bonds replaced the E Bonds in 1980 and are also bought at a discount.  However, the discount is 50%.  If the EE Bonds are bought electronically, they are bought at face value.  For example, a $100 bond costs $100.  The income can be reported on a cash basis and the interest deferred until the bond is redeemed.  Alternatively, a bond owner can elect to declare the income annually on their tax return even though they did not receive any cash.  As you would suspect, very few taxpayers make this election.  EE Bonds issued after May 1, 2005 pay a fixed rate of interest.  EE Bonds issued between May 1997 and April 30, 2005 pay a variable rate of interest.

Be careful if you are reissuing bonds.  This could become a reportable event if:

  • The name of a living owner or principal co-owner doesn’t appear on the reissued bond.
  • The name of a surviving beneficiary, or other person entitled to ownership, doesn’t appear on the reissued bond as owner or principal co-owner.

A reportable event means the IRS will issue a 1099 for the accumulated interest.  Essentially, this means that a gift of a bond to another individual will trigger all of the accumulated interest.

H Bonds were issued from 1952 to 1979.  These bonds have a 30 year maturity.  HH Savings Bonds replaced the H Bonds and were offered from 1980 until August 2004.  The bonds were bought at face value.  They have a 20 year maturity and pay a fixed rate of interest semi-annually.  All issues of H Bonds have matured and no longer pay interest.

I Bonds are known as inflation bonds and are also bought at face value. These bonds have a maturity between one and 30 years.  I bonds offer a fixed rate of return and a variable semi-annual inflation rate. 

There is a small income tax exclusion for savings bonds used for higher education.  EE and I Bonds issued after 1989 to a taxpayer age 24 or older after issuance are not subject to federal income tax if used for higher education.  Qualified expenses include tuition and fees, but not room and board.  There is a phase-out for this exclusion.  For 2009, taxpayers that file married filing joint can exclude all of the bond interest income used for higher education if their adjusted gross income is below $104,900.  They are not entitled to any exclusion if their adjusted gross income is above $134,900.  Income between these amounts will allow for a limited exclusion.  

ACTION ITEM:  People that own government savings bonds need to gather all of the relevant information about the bonds before deciding what, if anything, should be done with them.

Thomas F. Scanlon, CPA, CFP®

About the author:

Karen Tedford,

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