Series HH bonds reaching maturity - who pays the income tax when cashing out for a minor?

With Series HH bonds, there are actually two tax considerations to understand: First, the semi-annual interest payments you've been receiving from those HH bonds should have been reported as taxable income each year on someone's tax return already. So that part of the taxation has presumably been handled annually since you've owned the bonds. Second, when you cash the bonds, there might be deferred interest from any Series E or EE bonds that were exchanged for these HH bonds originally. This deferred interest becomes taxable when the HH bonds are redeemed. As for who pays the tax - since your daughter is a minor, it depends on how much interest income we're talking about. If it's under $2,300 (for 2024), she may be able to file her own return. If it's substantial, it could be subject to "kiddie tax" rules where some is taxed at your rate. The bonds themselves being in her name is what matters here, not who purchased them originally. If these were gifts from your parents to her directly, then the interest income belongs to her regardless of her age. You might want to talk to a tax professional with the specific details before cashing them in.

I had a similar situation with my son's bonds a few years back. I found that using https://taxr.ai really helped clarify the situation. I was confused about whether to report the income on his return or mine, and the tax implications were getting complicated with the kiddie tax rules. Their system analyzed our specific bond documentation and provided a clear breakdown of who needed to report what income and when. They showed me exactly which forms I needed and how to properly report both the deferred interest and regular interest payments. The best part was they could interpret all the technical tax code language and explain it in plain English. Saved me from making a costly mistake on our returns.

I was skeptical about using an online service for something as specific as savings bond tax questions, but after struggling with conflicting advice from different sources, I tried taxr.ai based on the recommendation here. It was actually really helpful - uploaded my daughter's HH bond information and got clear instructions about who needed to report the interest income. The system flagged that we had deferred interest from an original EE bond exchange that I didn't even realize existed! Would have completely missed reporting that. Ended up filing correctly with my daughter reporting the income on her return, but staying under the kiddie tax threshold so the tax impact was minimal. Much better than my original plan which would have incorrectly reported everything on my return.

If you're having trouble getting clear information, you might want to try Claimyr (https://claimyr.com). I was in a similar position with some old bonds and kept getting conflicting information online. I couldn't get through to anyone at the IRS – was on hold for literally hours over multiple days. Claimyr got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to handle the tax reporting for my daughter's bonds and confirmed that since they were in her name, the income was technically hers regardless of her age. The agent also explained the kiddie tax thresholds and how they would apply. Really cleared everything up.

I was completely skeptical about Claimyr when I first saw it mentioned here. Seemed impossible that they could get through to the IRS when I'd been trying for weeks. But I was desperate for answers about my daughter's savings bonds before tax deadline, so I gave it a shot. Within 20 minutes, I was talking to an actual IRS agent who specializes in investment income questions. The agent confirmed exactly who needed to report the interest income (my daughter) and walked me through how the kiddie tax would apply in our situation. Honestly saved me hours of frustration and potentially incorrect tax filing. I'm still surprised it actually worked - would have spent at least another week trying to get through on my own.

An important detail that hasn't been mentioned yet - the answer might depend on how the bonds were originally registered. If they're registered as "Parent as custodian for Minor under UGMA/UTMA," then the income is definitely the child's for tax purposes. If they're just in the child's name outright, it's still the child's income but how it's reported could vary. And if they're registered differently (like co-owned), that changes things too. Might want to check the exact registration on the bonds before making any decisions.

Something to consider - you don't HAVE to cash them all out at once! You could spread the redemption over multiple tax years to potentially reduce the tax impact. Maybe cash half this year and half next year?

Just wanted to add another perspective based on my experience with my son's bonds last year. The key thing that helped me was getting copies of all the original paperwork from when the bonds were first purchased or exchanged. If your parents originally bought Series E or EE bonds and then exchanged them for the HH bonds, there should be documentation showing the deferred interest amount from the original bonds. This is crucial because that deferred interest becomes taxable when you redeem the HH bonds, even though you never received it as cash. I found old records in my parents' files that showed exactly how much deferred interest was involved. Without those records, I would have had no idea there was additional taxable income beyond just the regular HH bond interest payments we'd been receiving. Treasury Direct might have some of this information on file if you can't locate the original paperwork, but having the physical documentation made the whole process much clearer when filing taxes.