How much tax do you pay on treasury bills?
Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes. The interest income received in a year is recorded on Form 1099-INT. Investors can opt to have up to 50% of their Treasury bills' interest earnings automatically withheld.
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.
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.
Zero-coupon Treasuries are taxed as if you were receiving annual interest income, even though you won't receive any income until the bond matures.
Purchase Price: You buy a 1-year T-bill with a face value of $1,000. If the annual yield is 5%, you would pay approximately $950 for the T-bill upfront (the exact price would be calculated using the discount rate formula, but for simplicity, we'll use this close approximation).
T-Bill | CD | |
---|---|---|
Fed tax | 24.00% | 24.00% |
State tax | 0.00% | 9.90% |
Post Tax % of Yield | 76.00% | 66.10% |
Real Yield | 3.40% | 3.40% |
Treasury can withhold some of your interest payments to help defray your tax burden. We'll transfer your withholdings to the IRS and report the withheld amount on Form 1099 – I N T under “Federal Income Tax Withheld.” TreasuryDirect. Simply access your account and schedule the percentage you want withheld.
The biggest downside of investing in T-bills is that you're going to get a lower rate of return compared to other investments, such as certificates of deposit, money market funds, corporate bonds or stocks. If you're looking to make some serious gains in your portfolio, T-bills aren't going to cut it.
While no investment is 100% safe, Treasuries have a negligible level of risk. Since these securities are backed by the United States government, there's virtually no chance that you won't see a return on your investment.
Currently, Treasuries maturing in less than a year yield more than CDs. However, at maturities of one year and beyond, CDs yield a little more before taxes. Therefore, all things considered, it likely makes more sense to choose Treasuries over CDs for shorter-term investments, but it depends on your situation.
What is the difference between Treasury bills and Treasury bonds?
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.
Key Takeaways
Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level. U.S. Treasuries are exempt from state and local income taxes. Most interest income earned on municipal bonds is exempt from federal income taxes.

Basic Info
6 Month Treasury Bill Rate is at 4.26%, compared to 4.24% the previous market day and 5.33% last year.
When your T-bill matures, its life is over. The U.S. government will pay you the full face value of the bond. In our example above, you'd simply see the bond disappear out of your brokerage account or IRA and be replaced with $1,000.
Financial Institution | NerdWallet Overall Institution Rating | APY |
---|---|---|
Bask Bank, Member FDIC. | 4.5. | 5.10%. |
BMO Alto, Member FDIC. | 4.5. | 4.60%. |
EverBank (formerly TIAA Bank), Member FDIC. | 4.5. | 5.05%. |
TAB Bank, Member FDIC. | 4.5. | 5.02%. |
4 Week Treasury Bill Rate is at 4.70%, compared to 4.60% the previous market day and 5.30% last year. This is higher than the long term average of 1.48%. The 4 Week Treasury Bill Rate is the yield received for investing in a US government issued treasury bill that has a maturity of 4 weeks.
Bonds | Yield | Day |
---|---|---|
US 52W | 3.93 | -0.054% |
US 2Y | 3.57 | -0.066% |
US 3Y | 3.49 | -0.067% |
US 5Y | 3.51 | -0.061% |
3 Month Treasury Bill Rate is at 4.50%, compared to 4.53% the previous market day and 5.35% last year. This is higher than the long term average of 4.20%. The 3 Month Treasury Bill Rate is the yield received for investing in a government issued treasury security that has a maturity of 3 months.
You can only buy T-bills in electronic form, either from a brokerage firm or directly from the government at TreasuryDirect.gov. (You can also buy Series I savings bonds through TreasuryDirect.gov). Versus Treasury bonds, Treasury bills have shorter maturity dates.
Legacy Treasury Direct: Getting your IRS Form 1099
If you still have securities in Legacy Treasury Direct, we mail you a 1099 at the beginning of each year. If you need a duplicate 1099-INT form for the current tax year, call 844-284-2676 (free call) or, from outside the United States, +1-304-480-6464.
How often do T-bills pay interest?
What kind of interest payments will I receive if I own a Treasury bill? The only interest payment to you occurs when your bill matures. At that time, you are paid the par amount (also called face value) of the bill.
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.
Do Treasury bills get taxed? Yes, Treasury bills are taxed at the federal level using your marginal rate. However, income earned from Treasury bills is not subject to state tax or local income taxes.
Treasury bonds, Treasury notes, or Treasury bills sold before their maturity date could mean a loss, depending on bond prices at the time of the sale. Simply put, the face value is only guaranteed if the Treasury is held until maturity.
Treasury bonds—also called T-bonds—are long-term debt obligations that mature in terms of 20 or 30 years. They're essentially the opposite of T-bills as they're the longest-term and typically the highest-yielding among T-bills, T-bonds, and Treasury notes.