Treasury bills are short-term debt securities issued by the U.S. government, sold at a discounted price. When the bill reaches maturity, which can range from four weeks to a year, you’re paid its face value. Currently, Treasury bills are yielding around 4%.
How are Treasury bills taxed?
The interest you’re paid when your Treasury bill matures is subject to federal income tax, but not state or local taxes. It’s simply added on top of your regular income — like W-2 wages earned from your job — and taxed at your ordinary income tax rate. These rates range from 10% to 37%.
When are taxes due on Treasury bills?
You’ll pay taxes on Treasury bill interest the calendar year after you earned the interest, which doesn’t always equate to the year after you bought the security. Here’s how that might play out.
Say you bought a 13-week Treasury bill in December of 2024 and were paid interest when it matured in March of 2025. You’d receive a 1099-INT in the mail from the Treasury Department in the early months of 2026 detailing how much interest you were paid. Taxes would be due by the April 2026 filing deadline.
How to report Treasury bills on taxes
If you’re using an online tax software program to file your taxes, entering your 1099-INT income isn’t so different from entering W-2 income.
You may be able to snap a picture of the form and have the details automatically filled in for you, or you can key in the information manually.
Box 3 of the 1099-INT is specifically for reporting Treasury interest. This differs from interest you may earn from, say, a high-yield savings account, which is reported in Box 1 of the 1099-INT and is subject to state and local taxes.
The good news is that quality tax software will understand all of this and calculate your taxes correctly for you behind the scenes.
🤓Nerdy Tip
If you purchased Treasury bills through TreasuryDirect.gov and need to reference a previous year’s 1099, you can view or print a copy through your online account.
Tax withholding on Treasury bills
Unlike W-2 income, taxes are generally not withheld on Treasury bill interest income. That being said, if you bought the bills through TreasuryDirect, you can opt to have taxes withheld on your Treasury bill interest, which would lower how much you owe at tax time.
To do this, you can either log in to your TreasuryDirect account, or call or write to the Treasury Department and tell them how much to withhold. The Treasury Department allows you to withhold up to 50% of the interest you earn, but you won’t need to withhold this much.
The U.S. has a progressive tax system, meaning different sections of your income are taxed at different rates. The highest rate you pay is called your marginal tax rate. Withholding your marginal tax rate on your Treasury bill interest is likely a safe bet to cover the taxes you’ll owe.
