Are treasury bonds federally taxable?
Interest income from Treasury bills, notes and bonds - This interest is subject to federal income tax but is exempt from all state and local income taxes.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.
When you purchase a bond, you are essentially lending money to a company or government. Bonds typically pay a fixed amount of interest (usually paid twice per year). Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level.
Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes.
Are Treasury bills taxed as capital gains? Normally no. However, if you buy a T-bill in the secondary market and then achieve a profit, you may be liable for capital gains depending on your exact purchase price.
Interest rate risks: As are all bonds, Treasury bonds are subject to price volatility as a result of changes in market interest rates. Inflation risk: The interest earned on Treasury securities may not keep pace with inflation (with the exception of Treasury inflation-protected securities, or TIPS).
Treasury securities are issued in a wide range of maturities, from four weeks to 30 years. Generally, they are non-callable and the interest payments are exempt from state and local taxes – especially important for investors residing in high-tax states.
If you invest in TreasuryDirect, your 1099 will be available electronically and you can print the form from your account. 1099 forms are available by January 31 of each tax year.
Owners can wait to pay the taxes when they cash in the bond, when the bond matures, or when they relinquish the bond to another owner. Alternatively, they may pay the taxes yearly as interest accrues. 1 Most owners choose to defer the taxes until they redeem the bond.
The most common sources of tax-exempt interest come from municipal bonds or income-producing assets inside of Roth retirement accounts.
Are US Treasury bonds exempt from state income tax?
Interest income from Treasury bills, notes and bonds - This interest is subject to federal income tax but is exempt from all state and local income taxes.
Is interest income from I bonds taxed as capital gains? No, the interest income earned from I bonds is not considered a capital gain and is therefore taxed differently. Instead, it is taxed as regular income at the federal level and exempt from state and local taxes.

- 401(k) / 403(b) Employer-Sponsored Retirement Plan. ...
- Traditional IRA / Roth IRA. ...
- Health Savings Account (HSA) ...
- Municipal Bonds. ...
- Tax-Free Exchange Traded Funds. ...
- 529 Education Fund.
Treasury bills function more like cash in your portfolio and can be a safe harbor during turbulent economic times. Treasury bonds can provide a dependable stream of income, but can suffer a loss of value on secondary markets if interest rates go up.
In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
Normally, the interest you earn on your savings bonds becomes part of your gross income for tax purposes. Under certain conditions, though, you can avoid taxes on the interest by using it to pay for higher education.
Government bond funds can lose money if interest rates rise, since long term securities held by the fund will go down in price on the secondary bond market. Individual bonds will not lose money. They may not keep up with inflation, but they won't lose money.
Are Treasury bills a good investment? T-bills are known to be low-risk, short-term investments when held to maturity because the U.S. government guarantees them. Investors owe federal taxes on any income earned, but no state or local tax.
Those who sell their bonds before maturity during a period of rising interest rates may receive less than the bond's face value, incurring a loss. Inflation risk: Inflation erodes the purchasing power of the fixed interest payments from bonds over time.
Key Takeaways
Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes.
How to withhold taxes from TreasuryDirect?
- TreasuryDirect: In your TreasuryDirect account, tell us the percent to withhold.
- Legacy Treasury Direct: Call or write to us to tell us the percent to withhold. The phone number and address are in the section above.
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
TreasuryDirect requires Treasury marketable securities be held for 45 days following original issue before they may be transferred. 4-Week Bills bought at original issue in TreasuryDirect may not be transferred at all because the term of the security is less than 45 days.
Timing the Sale of Treasury Bonds
If you sell a bond for more than its purchase price before it matures, you may incur capital gains taxes. Long-term capital gains, on assets held for more than a year, are taxed at a lower rate than short-term gains.
What you earn from your Treasury marketable securities is subject to federal tax but is exempt from state and local taxes.