Do I have to pay tax on treasury bond interest?

Interest that you receive or that is credited to your account and can be withdrawn is taxable income and must be reported on your tax return.

Maturity periods for treasury bonds are longer than 10 years. Treasury bonds are generally issued in denominations of $1,000 to $1,000,000. Treasury bonds generally pay interest every 6 months. Report this taxable interest in the tax year it is paid on your tax return. When the treasury bonds mature, you can redeem the treasury bonds for face value.

When treasury bonds are sold between interest dates, part of the sales price represents interest accrued on the treasury bond to the date of the sale. The seller must report this taxable interest in gross income on his/her tax return. The purchaser must treat this amount as a capital investment for tax purposes and deduct it from the next interest payment on the treasury bond as a return of capital on his/her tax return. To do this the purchaser must report the total interest payment from the treasury bond as taxable interest on Form 1040, Schedule B , Line 1. After all interest from the treasury bond has been entered on Form 1040, Schedule B , Line 1, write "Accrued Interest", then enter the amount of accrued interest and subtract it from the interest income subtotal on your tax return.

You must give the payer of your interest income your correct social security number. If you do not, you may be subject to a tax penalty and to back-up tax withholding. For more information see "What is Form W-9 and backup tax withholding?"

You should receive Form 1099-INT for interest income and an Form 1099-OID for original issue discount from any paying institutions. You may receive a similar or substitute tax statement from each payer. Payers of interest of $10 or more are required to furnish you and the IRS with this tax information. This tax information is also usually included on your year-end account statement. Even if you do not receive a tax statement or Form 1099 you are still responsible for reporting all taxable interest income on your tax return. The IRS is notified of all interest paid by financial institutions on magnetic media. If you do not include your interest income on your tax return the IRS will know when their computer system matches your tax return to the tax information provided by payers. You will then be notified, usually by mail, of the amount of additional tax, interest, and penalties that you owe.

Interest of $1,500 or Less
If your taxable interest income is $1,500 or less, you need to show that taxable income on Line 8a of Form 1040 or Form 1040A, or Line 2 of Form 1040EZ.

Interest of More Than $1,500
If your taxable interest income is more than $1,500 you must file Form 1040 or Form 1040A. You cannot file Form 1040EZ. Start by showing your interest income on Form 1040, Schedule B, or on Schedule 1 of Form 1040A. FolIow the instructions and this will carry over the information to Line 8a of Form 1040 or Form 1040A.

Related tax information about treasury bond interest

Tax Directory Topics:
Income Related Questions and Answers

IRS publications about treasury bond interest:
For additional tax information about treasury bond interest refer to IRS Publication 550,

Investment Income and Expenses. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

Customer Support

Still have IRS or tax questions?
To view the alphabetical Master Index of all tax and IRS topics click here.

Ask Julian Block your IRS and tax questions!

If you can't find the answer to your IRS or tax question in our web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine.

To call Julian for a tax consultation click here.

Prepare your IRS tax return and State tax return online - If you'd like to e-file and/or print your IRS tax return or State tax return online click here.