Federal income tax brackets

Tuesday, November 10th, 2009
Categorized as: Savings Bond taxes

The IRS has announced its inflation adjustments for the 2010 tax year. As you know, US income tax rates are graduated. Everyone pays the same amount on their first dollar of income. The percentage you pay on your last dollar of income, however, depends on what your total income is.

The income tax rate you pay on your last few dollars of your income is called your IRS tax bracket or your marginal tax rate.

If you can move income from year-to-year, you will pay the least in taxes if you move your income to the year in which you are in the lowest tax bracket and have the lowest marginal tax rate.

The tax-deferral feature of US Savings Bonds gives you this kind of flexibility. Within the range of the 30-year-life of a Savings Bond, you can choose when to redeem the bond and pay the income tax on the interest you’ve earned.

The following table of IRS income tax rates will help you determine your tax bracket or marginal tax rate. You need to know your filing status and your taxable income.

Your taxable income is not the same as your total income, but is your income after deductions and exemptions. Look for the line on your tax return labeled Taxable Income.

 

Single
Federal income tax brackets

When Your Taxable Income Is Over: Your
Marginal
Tax
Rate
Is:
Last year
(2008)
This year
(2009)
Next year
(2010)
$0 $0 $0 10%
$8,025 $8,350 $8,375 15%
$32,550 $33,950 $34,000 25%
$78,850 $82,250 $82,400 28%
$164,550 $171,550 $171,850 33%
$357,700 $372,950 $373,650 35%

 

Married Filing Jointly
Federal income tax brackets

When Your Taxable Income Is Over: Your
Marginal
Tax
Rate
Is:
Last year
(2008)
This year
(2009)
Next year
(2010)
$0 $0 $0 10%
$16,050 $16,700 $16,750 15%
$65,100 $67,900 $68,000 25%
$131,450 $137,050 $137,300 28%
$200,300 $208,850 $209,250 33%
$357,700 $372,950 $373,650 35%

 

Married Filing Separately
Federal income tax brackets

When Your Taxable Income Is Over: Your
Marginal
Tax
Rate
Is:
Last year
(2008)
This year
(2009)
Next year
(2010)
$0 $0 $0 10%
$8,025 $8,350 $8,375 15%
$32,550 $33,950 $34,000 25%
$65,725 $68,525 $68,650 28%
$100,150 $104,425 $104,625 33%
$178,850 $186,475 $186,825 35%

 

Head of Household
Federal income tax brackets

When Your Taxable Income Is Over: Your
Marginal
Tax
Rate
Is:
Last year
(2008)
This year
(2009)
Next year
(2010)
$0 $0 $0 10%
$11,450 $11,950 $11,950 15%
$43,650 $45,500 $45,550 25%
$112,650 $117,450 $117,650 28%
$182,400 $190,200 $190,550 33%
$357,700 $372,950 $373,650 35%

 

Estates and Trusts
Federal income tax brackets

When Your Taxable Income Is Over: Your
Marginal
Tax
Rate
Is:
Last year
(2008)
This year
(2009)
Next year
(2010)
$0 $0 $0 15%
$2,050 $2,300 $2,300 25%
$5,150 $5,350 $5,350 28%
$7,850 $8,200 $8,200 33%
$10,700 $11,150 $11,200 35%
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37 Comments

On May 15th, 2008 Carl V. Hamilton said:

I cashed in a large amount of EEBonds (5-13-08) to reinvest and changed my minds. Can the money still be rolled over into HH bonds and not be taxed for all this year? I will be 75 this year and have not had to pay tax at all for last 5 years. Please can you help or tell me who to talk to?

On May 16th, 2008 Tom Adams said:

Carl – You can’t change your mind about cashing Savings Bonds. Even so, your bigger problem is that HH bonds were discontinued in 2004.

Tom Adams

On November 5th, 2008 Dixie Jircik said:

$26,500 HH bonds had to be redeemed this year. I received $1060 (4%) per year and paid income tax each year on that amount. Now I am told I will have to pay income taxes on $22,532 deferred interest. I never saw a penny of that money. Does this seem fair? As a retired widow of 79 yrs. I find it more difficult each year to meet expenses, much less an unexpected tax on $22,532. Do I have any choice?

On November 5th, 2008 Tom Adams said:

Hi Dixie – actually you did see the money when they paid you the $26,500 for the HH bonds. What they’re saying is that of that amount, $22,532 was interest earned and $4,000 was the original investment.

Taxes have been deferred on the interest for decades (in fact, you’ve been earning interest on the deferred taxes) and now the tax is due.

You need to set aside a portion of the $26,500 to pay the tax with. Since you’re retired, the tax rate will be quite low compared to what others have to pay. There are no other options.

Tom Adams

On March 5th, 2009 carl thompson said:

My father in law passed in Dec 08 and left a lot of H bonds. Can I delare the deferred interest on his 08 return and reissue?

On March 5th, 2009 Tom Adams said:

Carl – This would involve changing your father’s treatment of his Savings Bond interest from the normal accrual method to the cash method. Unfortunately, this isn’t allowed with Series H or HH Savings Bonds. So, no, you can’t put the taxes on his return. You can, of course, have the bonds reissued to his heirs.

Tom Adams

On April 19th, 2009 Christa said:

I have some bond I would like to cash but I am unsure of the amount of taxes I will have to pay. Could you explain to me how much interest or $ amount of the bonds I would have to cash before I need to file a 1099 form?

On April 20th, 2009 Tom Adams said:

Christa – the amount of tax you have to pay depends on your other income, as shown in the tables on this page.

A 1099 is something your receive, not something you fill out. You will receive one after you cash your bonds. It tells you (and the IRS, which gets a copy) how much interest to add to your next tax return. The actual amount of tax you’ll pay depends on your filing status and taxable income.

Tom Adams

On April 30th, 2009 Patty said:

Let me make sure I understand this. My husband and I will make $45,500 each ($91,000 combined) in 2009. So our federal tax bill will equal $18,777 or $9388 each. But if we get divorced (still living together) each claim one of our two kids so that we both can file as “single head of household”, then our total tax bill would be $10,064 or $5032 each. We can save a total of $8713 each year just by getting divorced??

On May 1st, 2009 Tom Adams said:

Patty – if you were still living together you couldn’t both be heads of the household. You’d have to have two households.

Also, something is off in the way you calculated the taxes. Here’s how to calculate it, with the understanding that tax rates are based on your taxable income, which is less than your total income but varies from family to family. So what someone actually paid would be less than these examples:

If you’re married, the bill comes to:

$1,670 (10% on the first $16,700)
$7,680 (15% on the next $51,200)
$5,775 (25% on the next $23,100)
-------
$15,125 Total

In your example where you’re each head of a household:

$1,195 (10% on the first $11,950)
$5,033 (15% on the next $33,550)
-------
$6,228 Each
-------
$12,455 Total

So you’d save $2,670 on taxes, but you’d have to set up two households.

Tom Adams

On October 5th, 2009 John said:

I have $25000 worth of EE bonds from the 80’s and just went back to grad school. While I dont need the money, it seems to me it would make sense to cash them all now while I’m making nothing, rather than cash them in a few years when I’ll be working…… due to the tax brackets described in this article. Saving 10% Fed taxes on 20-27 yrs worth of interest seems much more important than State tax exemption over the few remaining years. Does this sound reasonable??

On October 6th, 2009 Tom Adams said:

John – Yes – you have a one-time get out of tax free card. Whenever your rates are low it’s a good time to roll over your investments and pay the tax.

You might also qualify for the Savings Bond education deduction. Check it out.

Tom Adams

On October 16th, 2009 Linda Quercia said:

Tom,
I just cashed several EE and I bonds for my two children, ages 18 and 15. The bonds were all in their names and with their social security numbers. I divided the money evenly and deposited each amount into their individual savings accounts. They are both still in high school and do not have jobs. Will they or I still have to pay the taxes on these cashed bonds?

On October 19th, 2009 Tom Adams said:

Linda – if they have no other income than the Savings Bond interest, it depends on how much interest they earned. For the 15-year-old, but not the 18-year-old, you might have to add the income to your own tax return if it amounts to a lot of money. See tax law change impacts kiddie tax for more information.

Tom Adams

On January 16th, 2010 Josh said:

I am currently a college student and I had cashed in some series EE bonds this past year, and after taking a quick look at your bond fact sheet it led me to believe that I am exempt from paying taxes on the interest I have earned on the savings bonds. Is this true and if there are stipulations to this what are they?

On January 18th, 2010 Tom Adams said:

Josh – the fine print of that deduction is here. The deduction is meant for parents, not students – notice the detail about how old you have to be when the bonds were purchased to get the deduction.

Tom Adams

On February 1st, 2010 Linda said:

My mother does not file income taxes. My brother died and left her several saving bonds. She received from the bank statements that list the interest on these bonds. What should do?

On February 2nd, 2010 Tom Adams said:

Linda – You don’t say why your mother doesn’t file an income tax return, but I’ll assume it’s because her income is too low. Depending on how much interest she collected from the bonds, it may still be too low to have to file a return, or she may have to file a return and pay some tax on the interest.

The IRS instructions explain the income levels at which you need to file a form and pay taxes. If you don’t understand them, get some help.

Tom Adams

On February 12th, 2010 Chris W said:

Tom – My mom has $20,000 worth of savings bonds. Mostly EE bonds I think. She would like to reissue these bonds to me and my sister. Would either my mom, my sister, or myself have to claim the interest as income?

On February 15th, 2010 sue schulte said:

My mother who is in her mid 80’s cashed in 2 EE Savings bonds in 2009 and received $8,000. She was told they were tax free. She hasn’t filed taxes for the last 5 years because her income is too low. Does she need to file a federal tax return for 2009 because of these cashed out bonds which were purchased in the 70’s? Her total income is around $13K from interest, dividends, etc.

On February 15th, 2010 Tom Adams said:

Chris – If she adds you as a co-owner of the bonds, there would be no tax implications. If she makes you the owner and removes her own name, then she has to pay the tax on the interest earned up to the day of reregistration.

Sue – This is a tax question, not a Savings Bond question. You should consult a tax advisor for an answer to your question. Whoever told her the interest was tax free gave her bad information. In any case, the tax will be quite low because her income is so low, but if she’s already spent the money it could be a problem for her.

Tom Adams

On February 18th, 2010 Victoria R said:

My sister had no income for 2009, but she cashed in some savings bonds to purchase a new car. Does she need to file taxes this year?

Thanks!

On February 18th, 2010 Tom Adams said:

Victoria – It depends on how much interest income she got from the bonds and what her filing status is. The answer is in Table 1-1 on page 9 of IRS Publication 17.

Tom Adams

On March 5th, 2010 Jerry said:

My uncle passed away nearly four years ago, and only my cousin and I are remaining heirs. We were appointed co-administrators of his estate, which has already gone through probate. My question is this: there was a considerable amount of savings bonds in the estate, mostly E and EE, that resulted in a considerable amount of interest, obviously.

My question is this: given that the estate is still open until the end of the month, and the redeemed bonds have since been cashed (half in 2009 and half thus far in 2010) and dispersed equally among my cousin and myself, does the interest that was earned get reported by my uncle’s estate or by my cousin and myself on our own respective returns.

I’ve been told different conflicting stories that the tax rate for redeemed bonds is much lower if it’s applied to the return of the estate, rather than to the returns of the heirs that are the beneficiaries.

Someone told me that because the estate had no other income other than the bond interest, and that there were expenses associated with the eventual disbursement and closing of the estate (including lawyer fees), that the interest on the savings bonds will be taxed at 11 percent rather than the 25 or 28 percent bracket my cousin and I find ourselves in.

Someone else told my cousin that the estate will be taxed up to 35 percent on the savings bond interest, even though there was no other income.

Also, the 1099 interest form was sent to the estate.

Lastly, since we only cashed half the bonds in 2009, with the remainder this year, will the estate then have to be kept open until next year to pay the interest on the bonds cashed in 2010?

Can you please advise, Tom? We are desperate for the right answer. Thank you.

On March 8th, 2010 Tom Adams said:

Jerry – Although this seems like a Savings Bond question because the income came from Savings Bonds, it’s actually a tax question – the answer would be the same no matter where the income came from.

Thus you would be much better off asking someone with experience in how estates are taxed than asking me.

However, just going by the tables above, it looks to me like the estate’s tax rate is going to be higher than yours as individuals. But again, I’m not an expert in this area and you should consult someone who is.

Tom Adams

On March 16th, 2010 Gene Pierce said:

My grandmother cashed in 125 ee and I bonds. The interest was over $150,000 dollars. She is 101 years old and a widow of a disabled veteran.

She has no other income other than @ $10,000 per year in soc. sec.. Tax man said she owed over $29,000. She lives in Indiana, so I don’t know what the state tax is, however, I think what the tax man figured is too high … am I right? You did say that the tax paid from the redeemed bonds is not capital gains tax but rather deferred tax? So does that mean she falls under the 28% tax bracket?

Is interest paid on bonds considered gross income?

On March 16th, 2010 Tom Adams said:

Gene – Savings Bond interest is called ordinary income. Gross income is all sources of income added together and the Savings Bond interest would be part of that.

If her income was $150,000 and her tax was $29,000, that’s only 19.3%. Her marginal tax rate was 28%, but the IRS only charged that much on the portion over $82,250, assuming she filed as a single person.

So this all sounds about right to me, but I wish everyone with that much money invested in Savings Bonds would spend a weekend reading my book, as it would save them lots of money.

Tom Adams

On March 29th, 2010 Sister Margie Lavonis said:

I received a 1099 for the interest gained on my mother’s federal savings bonds which were part of her estate. The ID number was issued by the Indiana Probate Court. What number do I use when paying the taxes and do I have to use a special form?

On March 30th, 2010 Tom Adams said:

Sister – I’m not sure what you mean by ID number. If you mean your Social Security Number, then it should be on the 1099 you received and also on your tax form. If that’s not what you mean, I need more information.

In any case you don’t need a special tax form for the IRS.

On your state tax form, however, you can deduct the Savings Bond interest from your income (states can’t charge income tax on interest from the federal government). That may require a special form, depending on how your state handles this.

Tom Adams

On April 15th, 2010 P Donzello said:

I have 21 Series E US Savings Bonds ($50 each) purchased throughout 1979 using GE Company contributions under the GE Savings & Security Plan. These bonds were delivered to me in January 1983 following a 3 year holding period, accompanied by a statement of their “owner’s cost for tax purposes” (equal to their redemption value on the delivery date). Since their redemption will result in a 1099 for their full accrued interest, how do I get credit for their tax basis when received, which was higher than the $37.50 price that the 1099 will assume?

On April 16th, 2010 Tom Adams said:

P – Sorry, I have no idea. I’ve never heard of this. I suggest you contact the GS’s retiree assistance center for help.

Tom Adams

On April 20th, 2010 Sid said:

My daughter and I are both listed on 20-year-old Series E bonds given as gifts when she was a baby. She is in graduate school and will have no other income in 2010. If she cashes face value $5,000, does she need to pay any taxes?

On April 21st, 2010 Tom Adams said:

Sid – Whether she would need to pay taxes depends on a large number of factors, such as how much other income she has, whether anyone claims her as a dependent, and how much interest the bonds have actually earned. I don’t think anyone can answer your question without getting the facts and running the numbers.

Tom Adams

On April 27th, 2010 Jennifer said:

My grandfather purchased 5 EE savings bonds for $5,000 each in the late 90’s and early 00’s. I was listed as the beneficiary, to receive the funds upon his death. Now I know that they are not fully mature yet, but he wants to give me the money they are worth thus far to help me in buying a house. So a couple questions, is it possible to have the taxes made my responsibilty rather than him, if we were to have the bonds reissued in my name and then I redeem them? Or should he redeem them himself and then “gift” me the money. If I do have them reissued and redeem them, do I then need to claim the total amount as income rather than just the interest made on the bonds? What do you think would be the best option?

On April 28th, 2010 Tom Adams said:

Jennifer – having them reissued to you is a taxable event for him and doesn’t gain you anything.

He should cash the bonds, hold back what he needs for the taxes, and give you what’s left.

Tom Adams

On May 12th, 2010 Chris said:

I have just completed graduate school and my last offical tution payment was in Jan 2010. I just remembered I have a few thousand dollars in savings bonds and I would like to cash them and get the savings bond education deduction (just learned about it). The only problem is I have just graduated and my last tution payment would have been before April 2010 so on my last tax year (2009).

Is it possible to cash in my savings bonds tax free with the savings bond education deducation even though my last/final tution payment was in Jan 2010? If not, can I get this deduction if I use it to pay for a federal stafford loan? Thanks for your help.

On May 12th, 2010 Tom Adams said:

Chris – the info you’re looking for is here.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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