How are Series HH savings bonds taxed when they mature for a minor?

The interest from Series HH bonds is actually taxable each year as it's earned, not when the bonds mature or are cashed. However, if you elected to defer the tax on the interest when Series E or EE bonds were exchanged for HH bonds, that deferred interest becomes taxable when the HH bonds are redeemed or reach final maturity. As for who pays the tax, it generally depends on who is the legal owner of the bonds. If your daughter is the owner (her name is on the bonds), then technically the interest should be reported on her tax return. Since she's a minor with likely little other income, the tax impact might be minimal compared to adding it to your return at potentially higher tax brackets. That said, there are special rules for minors. If the bonds were purchased by your daughter using her own money, the interest is reported on her return. If they were purchased by you or gifted to her, you may have the option to report the interest on your return.

I went through something similar with my son's savings bonds last year. I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me figure out the tax implications. You can upload your bond information and it analyzes everything based on current tax laws. What I liked is that it showed me different scenarios - reporting on my return vs. my son's return - and calculated the tax differences. It also explained all the regulations around Series HH bonds specifically, which was super helpful since they have some unique rules. The site even generated the forms I needed to include with our tax returns.

Just wanted to follow up - I tried that taxr.ai site that was mentioned earlier for my kid's bonds situation. It was super helpful! The tool confirmed that in our case, the kiddie tax did apply because our son had over $2,400 in unearned income, which meant some of it was taxed at our higher rate. But for smaller amounts like what OP is describing, their daughter would likely just pay taxes at her own (presumably lower) tax rate. The tool even generated a filled-out Schedule B and the other forms we needed. Definitely solved a lot of confusion I had about whose return should report what. Worth checking out if you're still confused after reading the IRS publications.

I had a terrible time trying to get answers from the IRS about a similar bonds situation last year. Spent hours on hold and kept getting disconnected. Finally found a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes. They have a demo video here: https://youtu.be/_kiP6q8DX5c showing how it works. The IRS agent I spoke with confirmed that for HH bonds in a minor's name, the interest should be reported on the minor's return, but there are exceptions if the parent purchased the bonds. In my case, because the bonds were a gift from a grandparent directly to my child, we reported it on my child's return. The IRS was actually really helpful once I could speak to someone.

I have to eat crow and follow up on my skeptical comment above. After yet another frustrating attempt to reach the IRS about my own tax issue (3 disconnections after 45+ minutes each time), I reluctantly tried Claimyr. Within 20 minutes I was talking to an actual IRS representative who helped clarify my Series I bond question. For what it's worth, the agent confirmed what others have said here - for bonds in a minor's name that were gifted directly by a grandparent, the interest generally goes on the minor's return. If the amount pushes them over the filing threshold, they need to file. If the parent purchased the bonds, there are different options. The service actually saved me a ton of time and frustration.

I think there's confusion here because of the difference between who OWNS the bonds and who PURCHASED them. From my understanding: 1. If grandma PURCHASED the bonds WITH YOUR DAUGHTER'S MONEY, then definitely your daughter's tax return. 2. If grandma PURCHASED the bonds with HER OWN MONEY but PUT THEM IN YOUR DAUGHTER'S NAME as owner, you have options. You can either report on your daughter's return OR you can report on your return (which might be higher tax rate but simpler). 3. If grandma PURCHASED AND OWNS the bonds but has your daughter as a BENEFICIARY, then actually it would be grandma's tax responsibility until ownership transfers. The fact that they're Series HH specifically also matters because of the deferred interest rules. Do you know if these were originally E/EE bonds that were exchanged for HH?

Question: has anyone dealt with the actual process of cashing these HH bonds? I've heard some banks won't even cash savings bonds anymore, especially the older series. Do you have to mail them somewhere?

Just want to add another perspective based on my experience with my nephew's bonds last year. Since your daughter is 16 and the bonds are in her name, reporting on her return is definitely the way to go given her low income level. One thing to keep in mind - make sure you get the 1099-INT from the Treasury when you cash the bonds. It will break down the taxable interest clearly. For HH bonds that were converted from EE bonds, there can be two components: the deferred interest from the original EE bonds (which becomes taxable now) and any interest earned by the HH bonds themselves. Also, even though your daughter might not technically be required to file if her total income stays under the standard deduction, it's probably worth filing anyway. She'll likely get back any taxes withheld from her summer job, and it establishes a good paper trail for the bond interest reporting. The IRS likes to see consistency, especially with larger amounts like this. The whole process was much simpler than I expected once I understood the rules. Good luck!