Using Your Income Tax Refund to Save By Buying Series I U.S. Savings Bonds
- What kind of U.S. savings bonds can I buy using this tax refund method?
- How can I use my tax refund to purchase paper I Bonds?
- What is a Series I savings bond?
- If I want to use my refund to buy savings bonds, do I need to set up a TreasuryDirect account first?
- Is this new? Could a refund previously be used to buy U.S. savings bonds?
- How much can I buy using this tax refund method?
- What denominations are available?
- Could you give an example of how this would work?
- Are there any redemption restrictions or penalties for early redemption?
- Will I receive paper bonds?
- What registrations are available?
- Can I buy savings bonds for my children or grandchildren using this tax refund method?
- How is interest on I Bonds calculated?
- Where can savings bonds be redeemed?
- How are savings bonds taxed?
- What tax benefits may be available if savings bonds are used to pay education expenses?
- What if my savings bonds are lost, stolen, or destroyed?
- What if I want to have a savings bond reissued (for example, if I want to add a second individual as a co-owner or a beneficiary)?
- How long will it take to receive my savings bonds?
- What will the issue date of my bonds be?
- What if there's a mistake on my tax return?
- Whom do I contact if I don't receive my savings bonds?
What kind of U.S. savings bonds can I buy using this tax refund method?
Series I U.S. Savings Bonds. (Details)
How can I use my tax refund to purchase paper I Bonds?
When you file your tax return, include IRS Form 8888. Complete Part 2 to tell the IRS you want to use part (or all) of your refund to purchase paper I Bonds. Purchase amounts must be in $50 multiples and you can choose to have any remaining funds delivered to you either by direct deposit or by check.
What is a Series I savings bond?
I Bonds are a low-risk, liquid savings product. While you own them they earn interest and protect you from inflation. The earnings rate has two parts: a fixed rate and an inflation rate. (Details)
If I want to use my refund to buy savings bonds, do I need to set up a TreasuryDirect account first?
No. You are not required to have a TreasuryDirect account. You can use IRS Form 8888 to request the purchase. Just follow the instructions on the form. Once your tax return has been processed by the IRS if you're entitled to a refund and the refund is an adequate amount to pay for the savings bonds, they will be mailed to you.
Is this new? Could a refund previously be used to buy U.S. savings bonds?
The option to purchase paper I Bonds with your refund became available in January 2010. Previously, you could only direct the refund to your TreasuryDirect account to be used for the purchase of electronic securities. Now, you have both options.
You can now use your refund to buy Series I savings bonds even if you don't have an account with Treasury.
How much can I buy using this tax refund method?
In any single calendar year, you can buy up to a total of $5,000 of paper I Bonds using your refund. Other than that upper limit, the amount you can buy depends upon the amount of the refund. You buy I Bonds at face value, meaning if you pay $50 (using your refund), you receive a $50 savings bond.
What denominations are available?
Using this purchase method, paper I Bonds will be issued in denominations of $50, $100, $200, $500, and $1,000 depending on the amount you request.
If you buy $250 or less of savings bonds with your refund, then the $50 denomination will be used to fill the order.
If your purchase amount is over $250, the $50 denomination will be used for the first $250 and the remainder of your order will be filled using the fewest possible number of additional bonds.
Could you give an example of how this would work?
Example: Bill is entitled to a $2,500 federal income tax refund. He decides to save $1,000 of the refund by buying savings bonds, to save another $1,000 by having the IRS direct deposit that amount to his IRA, and have the IRS direct deposit the remaining $500 to his checking account.
Bill gives the IRS these instructions by completing Form 8888 and attaching it to his Form 1040. In Part 1of the form he provides his IRA account number and indicates that he'd like to put $1,000 in the account. He also provides his checking account number and indicates he'd like to put $500 in that account. Then, in Part 2 of the form, he indicates that he'd like $1,000 worth of paper Series I bonds registered in his name with his daughter as the beneficiary. A few weeks later he receives six $50 bonds, one $200 bond, and one $500 bond in the mail.
Are there any redemption restrictions or penalties for early redemption?
Savings bonds are designed as longer-term investments, and generally cannot be redeemed during the first 12 months after you buy them (unless you are affected by a disaster, such as a flood, fire, hurricane, or tornado).
Also, if you redeem a savings bond within the first five years, the three most recent months' interest will be forfeited. After five years, no penalty will apply.
Will I receive paper bonds?
Yes. The I Bonds will be issued in paper form.
What registrations are available?
Single owner, co-owner, and beneficiary registrations are available. Taxpayers can also request bonds in the names of other people to give them as gifts.
Can I buy savings bonds for my children or grandchildren using this tax refund method?
Yes. You can request bonds in the names of others making it possible to give them as gifts. The bonds will be mailed to you at the address on file with the IRS.
How is interest on I Bonds calculated?
The I Bond earnings rate is a combination of two separate rates; a fixed rate and an inflation rate. (Details)
Where can savings bonds be redeemed?
Savings bonds can be redeemed at most financial institutions.
How are savings bonds taxed?
Interest on savings bonds is subject to taxes imposed under the Internal Revenue Code of 1986. The bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. You also have the option of claiming interest annually for federal income tax purposes.
Tax benefits also may be available when redemption amounts are used to pay education expenses.
What tax benefits may be available if savings bonds are used to pay education expenses?
Qualified taxpayers may be able to exclude all or part of the interest earned from eligible savings bonds issued after 1989 when paying qualified higher education expenses. Savings bonds must be issued in the name of a taxpayer age 24 or older at the time of issuance. Other restrictions and income limits apply.(More Information)
What if my savings bonds are lost, stolen, or destroyed?
The Bureau of the Public Debt (BPD) is authorized to replace lost, stolen, or destroyed savings bonds. You can file a claim by writing to: Bureau of the Public Debt, Parkersburg, West Virginia 26106-7012. You will need to complete form PD F 1048.
You should keep records of your savings bond serial numbers, issue dates, and social security or taxpayer identification numbers in a safe place. This information will help speed up the replacement process.
What if I want to have a savings bond reissued (for example, if I want to add a second individual as a co-owner or a beneficiary)?
If you decide you want to change the registration on your bond(s) you can use form PD F 4000 to request the change.
How long will it take to receive my savings bonds?
Your savings bonds are ordered after the IRS completes processing your tax return. Once ordered, it may take up to three weeks for your savings bonds to arrive in the mail. If you're having a portion of your refund deposited directly into your bank account, you may receive it before your savings bonds arrive by mail.
What will the issue date of my bonds be?
The issue date will be the first day of the month in which IRS submits payment for the bonds to the Treasury Retail Securities site in Minneapolis. For example, if Minneapolis receives your order from IRS on February 18, the issue date of your savings bonds will be February 1.
What if there's a mistake on my tax return?
If the IRS encounters errors on a return (e.g., refund amount is calculated incorrectly, IRS Form 8888 is completed incorrectly, requested amount is not a multiple of $50, etc.), the bond purchase will be cancelled and the full refund amount (if any) will be delivered to the taxpayer.
Exception: If an error is made that increases the refund amount the bond purchase will occur as requested and only the additional funds will be returned.
For more detail on how the IRS manages changes in refund amounts see the instructions on IRS Form 8888.
Whom do I contact if I don't get my savings bonds?
The first step is to check the status of your refund by going to the "Where's My Refund" feature on www.irs.gov or calling 1-800-829-1954. You can generally get information about your refund 72 hours after the IRS acknowledges receipt of your e-filed return, or three to four weeks after mailing a paper return. If the IRS has processed your refund and placed the order for your savings bonds, you will need to contact the Treasury Retail Securities site in Minneapolis at 1-800-553-2663 to inquire about the status of your savings bonds.