How much tax is paid on the interest earned on Savings Bonds?

The interest earned on U.S. Savings Bonds is subject to federal income tax but is exempt from state and local taxes. You can choose to report the interest each year as it accrues or defer it until you cash in the bond or it matures. If used for qualified education expenses, the interest may be tax-exempt. The exact tax rate will depend on your overall income and tax bracket at the time of reporting.