I redeemed HH bonds. Do I pay federal income tax on Accrued Interest Reported on my 1099-INT?

[RayW7]

The interest that your HH bonds earn every six months is subject to federal income tax, but not to state or local income tax.

The regular interest that your HH bonds earn every six months must be reported on your federal income tax return for the year in which the interest is earned. By January 31 of each year, we send the bond owner an IRS Form 1099-INT form showing the interest earned in the previous year.

In TurboTax, you can enter your form 1099-INT by following these steps:

1. In TurboTax, open your tax return
2. Click on Federal in the left-hand column, then on Wages & Income on top of the screen
3. Scroll down to All Income, locate the section Interest and Dividends and click on Show more
4. Click Start next to Interest on 1099-INT
5. Enter the boxes as they appear on your form 1099-INT

[userdh78]

     Unfortunately, you did not answer my question.  Of course, I know that I report and pay federal tax on the HH bond interest that I receive twice each year.  

     My question therefore does not refer to this interest but instead refers to Accrued Interest Reported which appeared IN ADDITION TO the usual reported yearly interest amount for the HH bond interest.  Both figures appear in Box 3 of 1099-INT.  The accrued interest is the result of my having redeemed some of the HH bonds which matured.  I believe that I owe tax on this accrued interest but I want to be sure.

     Thanks for any clarification that you may be able to provide.

[npierson7]

Yes, you're right. You need to include this amount in box 3 of your Form 1099-INT in your taxable income, in the same way as other any interest income. 

[bsktlady57]

The accrued interest stamped on the front of the bonds was the amount earned on the original savings bonds when they were exchanged for HH bonds.  That amount has never had taxes paid on it, so yes, you will need to pay taxes on the accrued interest in the tax year the bonds were redeemed.  On the back of the 1099 form you received from the Treasury Dept, there is an explanation for each column on the front of the form. 

[petlover]

I have the same question.  The original question was not answered as those who answered didn't understand what was on the Form 1099-INT.  No. 3 has the "Annual interest paid", which is reported for income tax purposes, of course.  But the true question is does the second column within No. 3 "Accrued interest reported" need to be reported and where?  This is the amount that has already been reported each year for income tax purposes and so we have already paid the tax each year.  We just don't know if it needs to go on the report for this 1099-INT.  The bank where the bonds were cashed report the deferred interest, which of course is reported on the bank's 1099-INT.  Please provide an answer that really answers the question that is being asked.  Thank you.

[GeorgeM777]

Yes, accrued interest reported does get reported on your return, and you are correct in that annual interest paid is not the same thing as accrued interest reported.  In TurboTax you will make an adjustment to the annual interest paid to reflect the accrued interest reported.  

To get to the page where you will enter information about the annual interest paid and eventually the accrued interest reported, go to Wages & Income.  Scroll down the page to the Interest and Dividends section.  Click Start and enter information when prompted.  In our test return, we chose the option "I'll type it in myself." 

After entering the annual interest paid as reflected on your Form 1099-INT, you will see this page or a similar page:

While the page topics are reflected as "uncommon," select the first box to begin entering information about your accrued interest.  In the pages that follow you will enter the actual dollar amount of the accrued interest as reflected on your 1099-INT.  The accrued interest will be reflected on your tax return as a non-taxable item.