How to Follow Form 8815 Instructions for Tax-Free Savings Bond Interest
Learn how to navigate Form 8815 to exclude U.S. savings bond interest from taxable income when used for education, including key eligibility and filing steps.
Savings bonds can help fund education, and the IRS allows certain taxpayers to exclude interest earned on these bonds from taxable income if used for qualified educational expenses. To claim this benefit, complete Form 8815 and ensure both the bonds and expenses meet IRS requirements.
Checking Bond Eligibility
Only Series EE and Series I bonds issued after 1989 qualify for tax-free interest. Older bonds, such as Series HH, do not. The bond must be purchased in the taxpayer’s name, and if co-owned with someone other than a spouse, it becomes ineligible.
The taxpayer must have been at least 24 years old when the bond was issued. A bond purchased by a parent in their name for a child qualifies, but a bond in the child’s name does not.
Bonds must be redeemed in the same tax year the interest exclusion is claimed. If cashed in a different year than when educational expenses are paid, the exclusion cannot be applied. Proper timing is essential to align bond redemption with tuition payments.
Qualified Educational Costs
The redeemed bond proceeds must be used for tuition and fees at eligible institutions, including colleges, universities, and vocational schools that participate in federal student aid programs. Expenses such as textbooks, room and board, and transportation do not qualify.
Only amounts required for enrollment, such as tuition and mandatory fees, are eligible. Optional expenses, including insurance, activity fees, or non-required course materials, do not count. Scholarships, grants, or employer-provided educational assistance must be deducted from eligible expenses before calculating the exclusion. For example, if tuition is $10,000 and a $4,000 scholarship is applied, only the remaining $6,000 qualifies for the tax-free benefit.
Both bond redemption and tuition payment must occur in the same tax year. If tuition is paid in December but bonds are cashed in January, the exclusion cannot be claimed for the earlier year.
Income Phaseouts
The IRS imposes income limits on this exclusion. In 2024, the phaseout begins at $96,800 for single filers and $145,200 for married couples filing jointly. Once modified adjusted gross income (MAGI) exceeds $111,800 for single filers or $175,200 for joint filers, no exclusion is allowed. These limits adjust annually for inflation.
Since MAGI determines eligibility, certain deductions and income sources can impact qualification. Contributions to deductible traditional IRAs, student loan interest deductions, and foreign earned income exclusions affect MAGI. Taxpayers near the phaseout range may benefit from increasing contributions to pre-tax retirement accounts or health savings accounts (HSAs) to reduce MAGI and maximize the exclusion.
Calculating Interest Exclusion
The exclusion is determined proportionally. If bond redemptions exceed tuition costs, only a fraction of the total interest earned can be excluded.
For example, if a taxpayer redeems $20,000 in bonds, including $5,000 in interest, but only $15,000 goes toward qualified tuition and fees, the exclusion ratio is 75% ($15,000 ÷ $20,000). Applying this percentage to the $5,000 interest, the taxpayer can exclude $3,750, while the remaining $1,250 is taxable.
Filling Out Form Details
Once eligibility, expenses, and income limits are confirmed, Form 8815 must be completed.
The form requires listing the total Series EE or I bonds redeemed during the tax year and the portion that represents interest, found on Form 1099-INT. Next, the amount spent on qualified educational expenses is entered, and the exclusion percentage is applied to determine the tax-free portion of interest. If income falls within the phaseout range, an additional calculation adjusts the exclusion accordingly. The final excluded amount is transferred to Schedule B of Form 1040.
Attaching to Your Return
After completing Form 8815, attach it to the federal income tax return. The IRS does not require tuition receipts or bond redemption statements, but keeping these records is advisable in case of an audit. Documentation should include proof of bond purchase, redemption details, and payment records.
If filing electronically, tax software typically prompts for Form 8815 information and transfers the exclusion amount to the appropriate section of Form 1040. Paper filers should attach the completed form behind the main tax return. Ensuring figures match across forms can prevent processing delays or IRS inquiries.