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You will get a statement at the end of the year saying how much of the bond value at redemption was earned interest. IRS will also get a copy. The statement will come from the bank that cashed in the bond(s) for you.
You will be obligated to add that interest (but not the principal) as part of your ordinary income for Federal income tax purposes when filing for that year. The interest will NOT be subject to state income tax in any state.