Stop Paying Taxes on EE Bonds Now: A Simple Deferral Strategy for 2026

Last April, I was staring at my pile of paper EE bonds—the ones my grandmother had given me for every birthday from 1998 to 2005—and realized I had a $10,000 problem. Not in a bad way. I had cashed in a bond to help cover a car repair, and my tax software was cheerfully telling me I owed an extra $340 in federal tax on the interest. But the rest of those bonds? Still sitting there, quietly earning 0.10% (yes, really) and ticking toward their 30-year final maturity. I was about to report all that accrued interest on my return that year, until a friend who works as a CPA said, “Why are you paying taxes on interest you haven’t even touched yet?” That was my first encounter with the EE savings bond interest deferral strategy—and it’s the single simplest way to stop paying taxes on EE bonds right now, without touching a single bond. If you own Series EE bonds (especially older ones from the 1990s or early 2000s), you have a choice that most people never realize: you can choose to report the interest every year, or you can defer it until you redeem the bond or it finally matures. This article will walk you through exactly how to make that choice work for you in 2026—and save hundreds of dollars this tax season.

What Exactly Is EE Bond Interest Deferral and Why Should You Care?

When you own a Series EE savings bond, the interest accrues each month but isn't paid out until you redeem the bond. The default federal tax treatment—unless you make an election otherwise—is that you can defer reporting that interest until the year you cash the bond or the bond reaches final maturity (30 years from the issue date). That's the law. But many taxpayers accidentally opt into annual reporting without knowing it, because they include the interest in their taxable income for a single year, thinking they have to. Or they get confused by a 1099-INT from a bank that cashed a bond for them and assume they must report all interest from all bonds every year. The truth is, unless you file a specific form with your tax return electing to report interest annually, you are automatically on the deferral method. And once you start reporting annually, you can only switch back to deferral with IRS permission (which is rarely granted). So the first decision point is critical: Do you want to pay tax now on interest you haven't spent, or keep that cash in your pocket today?

The immediate cash-flow benefit is obvious. If you own $20,000 in EE bonds that have accrued $3,000 in interest over the years, reporting that $3,000 now could cost you $600–$900 in federal tax (depending on your bracket). By deferring, you keep that money working for you—or just keep it in your checking account. And because EE bonds are exempt from state and local taxes, there's no state-level penalty for deferring. This is a no-brainer for most people, but there are a few wrinkles I'll cover later.

How to Set Up the Deferral: A Step-by-Step Guide for 2026

Setting up EE bond interest deferral is absurdly easy—once you know the trick. Here's the step-by-step process I used last year, and it worked perfectly.

Step 1: Determine Your Current Status

If you've never reported EE bond interest on a tax return before, you're already on the deferral method. Congratulations—you don't need to do anything. Just keep ignoring the interest until you redeem the bonds. If you have reported interest in a prior year (even once), the IRS considers that an election to report annually. To switch back, you'd need to file a request with the IRS, which is complicated and rarely approved. So if you've already started annual reporting, you're stuck with it unless you get permission. But here's the good news: most people haven't reported anything. I had never reported my bond interest because I didn't know I could—and that meant I was automatically deferring.

Step 2: File Form 8815 (If You Want to Elect Annual Reporting—Skip to Stay Deferred)

Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989, is mainly used for the education tax exclusion. But it also serves as the formal election to report interest annually. If you want to continue deferring, do not file Form 8815. That's it. No action needed. If you want to switch to annual reporting, file Form 8815 with your 1040 for the first year you want to start reporting. For 2026, that means filing it with your 2026 return (due April 2027).

Step 3: Handle Inherited Bonds and Trusts Carefully

If you inherited EE bonds, you have a choice: you can continue deferring the interest (by not reporting it) until you redeem the bonds, or you can report all the accrued interest on the decedent's final return (if the bonds were owned by the estate) and then start fresh. For bonds held in a trust, the trustee can decide. In my own setup, I inherited a small batch from my aunt in 2023. I consulted the instructions for IRS Publication 550, which clearly states that the beneficiary can continue the deferral. So I left them alone, and they're still growing tax-deferred.

Pro tip for TreasuryDirect users: If you hold electronic EE bonds in your TreasuryDirect account, the system does not automatically report interest to the IRS. It's entirely on you to decide whether to report. The interface shows your current accrued interest, but it's up to you whether to include it on your tax return. Just don't accidentally include it without intending to switch to annual reporting.

The Real Cost of Not Deferring: Penalties and Missed Opportunities

Let's put some real numbers on this. Imagine you own $15,000 face value of EE bonds issued in 2000, which are now worth about $30,000 (because EE bonds double in value after 20 years). The accrued interest is $15,000. If you report that interest now, you could owe $3,000–$4,500 in federal tax, depending on your bracket. Meanwhile, if you defer, that $15,000 continues to earn interest (even at current low rates of 0.10% or 2.96% for newer bonds) until you redeem or the bond matures in 2030. The opportunity cost of paying tax early is the lost compounding on that money. At a 5% annual return in a basic savings account, $3,000 in tax paid today could have grown to $3,400 in five years. That's real money.

But there's another hidden cost: the penalty for early redemption. EE bonds have a penalty of the last three months of interest if you redeem within the first five years. If you report interest annually and then redeem early, you've paid tax on interest you never even received (because of the penalty). Deferring avoids that complication entirely—you only pay tax on the interest you actually get.

And then there's the bracket creep scenario. Say you're in the 22% bracket now, but you expect to be in the 12% bracket in retirement. By deferring, you shift that interest income into a lower-tax year. That's a pure tax savings of 10% of the interest—potentially thousands of dollars. In my own case, I deferred $2,800 in interest from bonds I plan to hold until 2028, when I'll be semi-retired and in a lower bracket. That should save me about $280 in federal tax.

When Deferral Backfires: The Situations Where You Should Report Interest Now

I'm not going to pretend deferral is always the right move. There are three specific scenarios where reporting interest now makes more sense.

1. You're in a Very Low Income Year

If your income is unusually low this year—maybe you're between jobs, on sabbatical, or just started a business that's losing money—your marginal tax rate might be 10% or even 0%. In that case, reporting accrued EE bond interest could be essentially tax-free. I had a friend who took a year off to travel and had only $15,000 in taxable income. She reported $4,000 in EE bond interest that year and paid zero federal tax on it. That's a win.

2. You Plan to Use Bonds for Education

EE bonds used for qualified education expenses can be completely tax-free if you meet income limits (for 2026, the phaseout starts at $97,350 for single filers and $152,550 for married filing jointly). But here's the nuance: the education exclusion is only available if you use the cash proceeds in the same year you redeem the bond. If you defer the interest and then redeem in a year when your income is too high for the exclusion, you lose the benefit. So if you know you'll use the bonds for college tuition in the next year or two, it might be smarter to report the interest now (if you're in a low-income year) and then redeem later tax-free. In my opinion, this is one of the most overlooked trade-offs in savings bond planning.

3. Estate Planning Considerations

If you have a large EE bond portfolio and expect your estate to owe estate tax, reporting the interest annually reduces the size of your taxable estate (because you're paying tax now). But this only applies to very large estates (over $12.92 million in 2026 for federal estate tax). For 99% of people, this is irrelevant. The honest answer is: defer unless you have a clear low-income year or an education plan.

Conclusion: Your Simple 2026 Deferral Action Plan

Here's what I want you to take away. If you own EE bonds and have never reported the interest on your tax return, you are already deferring. Don't do anything different. If you have reported interest before, you're stuck—but that's rare. For everyone else, the 2026 strategy is simple: don't report the interest until you redeem the bond. That's it. No forms to file, no letters to the IRS, no extra work. Just keep the money in your pocket today and pay tax later, ideally in a lower-income year. Want to take it a step further? Check out our guide on How to Redeem EE Bonds Without Triggering a Tax Bomb for the full redemption playbook. And if you're deciding between EE and I bonds for new purchases, see EE Bonds vs. I Bonds: Which Savings Bond Pays Better in 2026? Worth bookmarking before your next tax season.