How are T-bills taxed? When is interest considered to be paid?
T-bills are state/local tax free, but the interest is federally taxable as ordinary interest income (1099-INT). Interest for T-bills is considered to be paid at maturity, creating a tax event only at maturity (as opposed to savings accounts and CDs which credit interest in regular intervals, and T-notes and T-bonds which pay interest semiannually). If your bill matures in the next calendar year, you’ll only owe tax in that next year. If you sell your bill or modify the registration (ownership) you may create a tax event before maturity.
