Reporting Interest earned on matured Savings Bonds on final maturity – and its tax implications

“When my Savings Bonds reach final maturity I understand from your recent column that I will have to report the total interest (even if I don’t cash them). As I have not reported the accrued income annually (had no idea of amount with paper bonds), and obviously here has been no withholding on that interest, that interest will raise my adjusted gross income. Will it there trigger penalties as not enough money overall would have been withheld in that year from my pension to cover that?

Terry Says:  That’s an interesting question — and if it is a substantial amount, it might have an impact.  But that depends on your total tax liability.Here’s what TurboTax has to say about the requirements:

If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year’s income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). This rule helps if you have a big spike in income one year, say, because you sell an investment for a huge gain or win the lottery.

Be sure to seek advice from your own tax preparer, regarding your individual situation.  And be aware that taxes might not be your only concern if the savings bond income is substantial.  It could impact your Medicare Part B costs, as well as other benefit programs for which you might be eligible.