Interest earned on all U.S. Treasury securities, including Treasury bills (T-Bills), is exempt from taxation at the state and local level but is fully taxable at the federal level. Following the end of the tax year, in January of the new year, owners of Treasury bills should receive a Form 1099-INT from the Department of the Treasury. This form details how much interest was earned on government securities for the year, information that is also filed with the Internal Revenue Service (IRS).

Understanding Treasury Bills (T-Bills)

Treasury bills are short-term debt obligations that are backed by the full faith and credit of the U.S. government. They are sold in denominations of $100 up to $10 million. T-bill maturity durations are one calendar year or less. Seven maturity durations are offered: 4, 6, 8, 13, 17, 26, and 52 weeks.

Like all Treasury securities, T-bills are considered "risk-free" assets. Technically, they are not risk-free, but they are viewed as securities with the lowest l🐭ikelihood of los𝓀s, and many use them as a risk reference rate called the risk-free rate. The possibility of the U.S. government defaulting on debt obligations is incredibly low, given its ability to tax and print money and, of course, the general strength and reputation of the U.S. economy and government.

This reputation for safety caused investors to flock to Treasury securities during the 2007-2008 financial crisis as losses in stocks and other assets in their portfolios mounted. Those who had already invested heavily in Treasury securities before the crisis successfully safeguarded their capital.

Treasury Bills Tax Rate

The interest earned by a T-bill is taxable as investment income in the year the interest was received and must be reported on your 澳洲幸运5官方开奖结果体彩网:federal tax return, Form 1040. The interest is taxed at your marginal tax rate.

If you buy a T-bill and sell it for a profit, that profit will be taxable as a capital gain if you hold it for more than one year. If you hold it for less than one year, it is taxed at your income tax rate.

Paying federal taxes on T-bills can be simplified via tax withholding. You can opt to have up to 50% of your interest earnings automatically withheld; the exact percentage can be specified through any retail securities site. The Treasury automatically transfers the withholdings to the U.S. Internal Revenue Service (IRS) and reports the amount withheld on the 1099-INT form.

T-Bill Tax Advantages

Although T-bills don't pay the highest interest rate (the tradeoff for being so low-risk), their exemption from state and local taxes can give them an advantage over other short-term, fixed-income assets, such as certificates of deposit (CDs)—especially for investors living in high-income-tax states, such as California, Hawaii, New York, and Oregon. CDs are 澳洲幸运5官方开奖结果体彩网:fully taxable at the state and federal levels.

To compare the interest rate from a CD with the rate from a Treasury bill and see which works out bett🎃er tax-wise, you have to calculate the after-tax yields for both investments.

For example, imagine you are a single taxpayer in Oregon with an income of $101,000 per year and the one-year Treasury bill you are looking at yields 3.58% (as of May 1, 2025). The federal tax rate for your income level is 22%, and the state income tax rate is 9.9%.

🐻 After federal tax🧸es, your net earnings from the Treasury bill will be only 2.79% (3.58% x 78%). But the tax rate on the CD is higher since it also includes state taxes.

You would only keep 68.1% of the yields after taxes (100% - 2ꦡ2% - 9.9%). Divide 3.58%, the after-tax yield of the Treasury bill, by 68.1% to get 5.26%, the equivalent after-tax yield for a certificate of deposit. A CD must yield more than 5.26% to be a better deal than the Treasury at your income level.

The Bottom Line

Treasury bills are taxed at the federal level but not by state and local governments. Many investors use them as a means to preserve capital when there is market turmoil, but they can also be used in other investment strategies.