Yes, Treasury bills are taxable, but only by the federal government. T-bill interest is treated as ordinary income on your federal return and taxed at whatever marginal rate applies to your bracket, which runs from 10% to 37% for 2026. It is exempt from every state and local income tax by federal statute.1Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation
What Actually Gets Taxed
T-bills don’t pay periodic interest. You buy the bill at a discount and receive its face value at maturity, and the spread is your income. Pay $9,850 for a $10,000 bill, collect $10,000 six months later, and the $150 difference is what the IRS taxes. It’s classified as interest, not as a capital gain.2TreasuryDirect. Treasury Bills
Federal Tax Rate on T-Bill Interest
T-bill interest is gross income under 26 U.S.C. § 61 and taxed at ordinary rates.3Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined It stacks on top of your wages and other income, and the rate you pay is the marginal bracket that portion falls into.
For tax year 2026, single filers face these brackets:
- 10%: up to $12,400
- 12%: $12,401 to $50,400
- 22%: $50,401 to $105,700
- 24%: $105,701 to $201,775
- 32%: $201,776 to $256,225
- 35%: $256,226 to $640,600
- 37%: over $640,600
A single filer with $60,000 in taxable income would owe 22% on T-bill interest at the margin. Married couples filing jointly hit the 22% bracket between $100,801 and $211,400.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
The 3.8% Surtax for Higher Earners
If your modified adjusted gross income clears the Net Investment Income Tax threshold, an extra 3.8% applies to your T-bill interest on top of your ordinary rate. Interest income counts as net investment income for this purpose.5Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The thresholds:
- Single: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
These figures are set by statute and have never been indexed to inflation, so more filers cross them each year. A single filer earning $220,000 with $5,000 of T-bill interest can push the effective federal rate on that interest above 27%.
Why States Can’t Touch It
Under 31 U.S.C. § 3124, obligations of the United States are exempt from taxation by any state or political subdivision. The exemption covers state and local income taxes. It does not cover state estate or inheritance taxes.1Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation
On your state return, you subtract the T-bill interest from your state taxable income. The benefit scales with your state’s rate, and it disappears entirely in the nine states that levy no individual income tax.
When the Tax Comes Due
T-bill interest is reportable in the year the bill matures, not the year you bought it. Federal law provides that the discount on a short-term U.S. obligation does not accrue until the bill matures, is sold, or is otherwise disposed of.7Office of the Law Revision Counsel. 26 USC 454 – Obligations Issued at Discount Buy a 26-week bill in October 2026, hold to maturity in April 2027, and the interest lands on your 2027 return.8TreasuryDirect. Interest Income Reporting for Marketable Treasury Securities
Selling Before Maturity
Selling a T-bill on the secondary market triggers tax in the year of sale. The accrued discount through the sale date is ordinary interest income. Anything beyond that is generally capital gain or loss, though the amounts involved with T-bills are usually small enough that the profit is effectively all ordinary income.9Internal Revenue Service. Publication 1212 (12/2025), Guide to Original Issue Discount (OID) Instruments
How It Gets Reported
Your broker or TreasuryDirect issues Form 1099-INT. T-bill interest appears in Box 3, which is reserved for interest on U.S. savings bonds and Treasury obligations, not in Box 1 with other taxable interest. Look at the right line.10Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID (01/2024) The Box 3 figure is also what you subtract from your state taxable income.11Internal Revenue Service. Form 1099-INT (Rev. January 2024)
If your total interest income for the year exceeds $1,500, you file Schedule B with your Form 1040. Below that, you still report the interest, just without the separate schedule. TreasuryDirect posts 1099s to your account by the end of January; brokerages typically issue consolidated statements in February.12TreasuryDirect. Treasury Marketable Securities Tax Forms and Tax Withholding
When Withholding Applies
Nothing is normally withheld from T-bill interest. Backup withholding of 24% kicks in only if you failed to give your payer a correct taxpayer identification number, or if the IRS has notified the payer that you previously underreported interest or dividend income. Any amount withheld counts as a tax payment credited on your return. Keep an accurate W-9 on file with every institution that holds your Treasury securities.13Internal Revenue Service. Backup Withholding
Nonresident Aliens
T-bill interest is generally exempt from U.S. federal withholding for nonresident aliens under the portfolio interest exemption. Treasury securities issued after July 18, 1984, are in registered form and qualify, so no 30% withholding applies.14Internal Revenue Service. Nonresident Aliens – Exclusions From Income Any applicable tax treaty and home-country tax rules are separate questions worth checking.