Education Savings Bonds Program

One exclusive benefit of United States savings bonds is the Education Tax Exclusion (26 USC § 135), which allows qualified taxpayers to redeem their bonds tax-free if the proceeds are used to pay for certain educational expenses at qualified institutions. For tax-free treatment, the redeemed bonds must be Series EE or Series I bonds issued after 1989 to someone at least 24 years old, and who is responsible for the college tuition, and the college tuition must be paid in the same year when the bonds are redeemed. The money cannot be used for books or for room and board.

Bondholder Qualifications

Above those threshold amounts, the tax-free treatment starts phasing out, depending on filing status:

MAGI Thresholds for the Phaseout of the Tax-Free Treatment of Redeemed Savings Bonds
Filing status Phaseout
Joint Filers $145,200 $175,200
All Others $96,800 $111,800
Joint Filers $137,800 $167,800
All Others $91,850 $106,850
Joint Filers $128,650 $158,650
All Others $85,800 $100,800
Joint Filers $124,800 $154,800
All Others $83,200 $98,200
Joint Filers $123,550 $153,550
All Others $82,350 $97,350

If MAGI exceeds the phaseout limit, then the entire redemption amount is taxable — there is no tax savings.

To calculate the tax-free portion of the educational bond redemption when the MAGI exceeds the threshold:

Example: Tax-Free Portion of Education Bond Redemption Reduced by MAGI for a Single Taxpayer in 2022
Eligible Redeemed Bond Principal + Interest $10,000
MAGI $95,000
Phaseout Threshold $85,800
Phaseout Limit $100,800
Phaseout Reduction $6,133 = Redemption Amount × (MAGIPhaseout Threshold)/(Phaseout LimitPhaseout Threshold)
Tax-Free Redemption Amount $3,867 = Redemption AmountPhaseout Reduction = $10,000$6,133

Warning! The exclusion of interest of US savings bonds is subject to a phaseout based on income when the bonds are redeemed, not when they are purchased. Hence, taxpayers who start buying savings bonds when they are younger and poorer may eventually become rich enough that the interest will not be excludable from their income, even when used to pay qualified educational expenses.

Bond Redemption Requirements

Qualified Education Expenses

Qualified educational expenses have the following requirements:

However, qualified educational expenses must be reduced by the amount of any tax-free portions of scholarships, fellowships, employer-provided educational assistance, and other forms of tuition reduction, by the expenses used to calculate the tax-free portions of Coverdell ESA's and qualified tuition programs, then by any expenses used to calculate the American opportunity credit or the lifetime learning credit. This result yields the adjusted qualified education expenses (AQEE).

All of the principal and interest must be used to pay qualified expenses. If bond redemption proceeds exceed AQEE, then the interest excludable from income is reduced pro rata:

Tax-Free Interest = Interest × Adjusted Qualified Education Expenses
Total Bond Redemption Amount
(Principal + Interest)

Taxable Interest = Interest − Tax-Free Interest

Example 1:

Example 2:

Historical Notes

MAGI Thresholds for the Phaseout of the Tax-Free Treatment of Redeemed Bonds
Filing status Phaseout
Joint Filers $124,800 $154,800
All Others $83,200 $98,200
Joint Filers $123,550 $153,550
All Others $82,350 $97,350
Joint Filers $121,600 $151,600
All Others $81,100 $96,100
Joint Filers $119,300 $149,300
All Others $79,550 $94,550
Joint Filers $117,250 $147,250
All Others $78,150 $93,150
Joint Filers $116,300 $146,300
All Others $77,550 $92,550
Joint Filers $115,750 $145,750
All Others $77,200 $92,200
Joint Filers $113,950 $143,950
All Others $76,000 $91,000
Joint Filers $112,050 $142,050
All Others $74,700 $89,700
Joint Filers $109,250 $139,250
All Others $72,850 $89,700