Does It Matter Whose Social Security Number Is on a Savings Bond?
Understand the significance of the Social Security Number on savings bonds for ownership, tax, and administration.
U.S. Treasury savings bonds are debt securities issued by the United States Department of the Treasury, representing a loan from an individual to the federal government. These bonds are secure investments because they are backed by the full faith and credit of the U.S. government. They are designed to be a safe and accessible investment, earning interest over a specified period. Social Security Numbers (SSN) are integral to savings bonds for accurate record-keeping and tax compliance.
Savings Bond Ownership Types
A savings bond can be registered in several ways, each defining distinct legal ownership and redemption rights. Single ownership registers the bond solely in one person’s name, granting that individual exclusive control over the bond and its earnings.
Co-ownership involves two individuals named on the bond, typically joined by “OR” (e.g., “John Doe OR Jane Smith”). Either co-owner can redeem paper bonds without the other’s consent. For electronic bonds in a TreasuryDirect account, the principal owner controls redemption, though the co-owner retains survivorship rights.
The beneficiary designation, often indicated as “Payable on Death” (POD), involves one primary owner and a named beneficiary (e.g., “Leslie Doe POD Dana Doe”). The beneficiary has no rights to the bond while the primary owner is living. Ownership and redemption rights transfer to the beneficiary only upon the primary owner’s death, bypassing probate.
Social Security Number’s Purpose on Bonds
The Social Security Number is included on a savings bond for identification and federal tax reporting. This number identifies the individual or individuals responsible for reporting the interest income that accrues on the bond. The Internal Revenue Service (IRS) requires the SSN of the bond owner or co-owner liable for this interest income.
Interest earned on savings bonds is reported for federal income tax when the bond is redeemed, matures, or ownership is transferred. Bondholders can elect to report interest annually. Interest from savings bonds is subject to federal income tax but is exempt from state and local income taxes.
In cases of co-ownership, tax reporting responsibility falls to the individual who contributed the funds to purchase the bond. If both co-owners contributed, they report interest in proportion to their contributions.
Handling Ownership and SSN Changes
Correcting an incorrect Social Security Number on a savings bond does not involve reissuing the bond. The Treasury should be notified directly about the error. For paper bonds, this requires sending a letter with the bond’s details, the incorrect and correct SSNs, and a completed IRS Form W-9 or FS Form 1980 to the Treasury Retail Securities Services.
Changes in legal ownership, such as gifting, inheriting, or court-ordered transfers, necessitate reissuing the bond to reflect the new ownership and associated SSN. This process ensures future interest accrual and tax reporting are correctly attributed.
When a bond is reissued, the original owner is responsible for reporting and paying federal income tax on all interest accrued up to the reissuance date. The new owner becomes liable for interest earned from the reissuance date forward. Most reissued bonds are electronic and require the new owner to have a TreasuryDirect account.
During redemption, the Social Security Number verifies the individual cashing the bond. This ensures payment to the rightful owner and accurate reporting of accrued interest to the IRS.