Tax on Treasury Bill Interest

[ARB57]

i was SO sure I knew the answer to this question...but based on info I got from an unnamed brokerage firm...I'm not so sure. It is my belief that interest on a Treasury BILL is not earned or paid until MATURITY. Therefore, federal tax obligation comes in the year in which it matures.

The broker with whom I spoke, said that it's possible that there could be tax consequences prior to maturity (phantom income.) Treasury bonds, treasury notes, TIPS, zero coupons have their own set of rules...but I still think I'm right. No tax obligation until the year in which a treasury Bill matures.

Am I right??

Thanks.

 

[Lakewood90712]

So Sorry, on those , IIRC, It's pay in the year earned.

Savings bonds are taxed when redeemed.

 

[upset264]

T-bills become taxable at the time of maturity or sale if sold before maturity.
Exempt from state tax.

 

[ARB57]

Thanks. I'm still a bit confused (so what's new) there is no earned interest until maturity with a Treasury Bill. Are you saying, there IS a tax obligation prior to maturity?

 

[gwraigty]

I used to buy Treasury Bills. You are right. Here it is, direct from the source:

https://www.treasurydirect.gov/indiv/research/indepth/tbills/res_tbill_tax.htm

"NOTE: If a bill in TreasuryDirect matures at the end of a year and we don't issue payment until the first days of the following year, the interest for that bill will be shown on the 1099-INT for the year in which the bill matured, not for the year in which the interest was paid."

https://www.treasurydirect.gov/indiv/research/indepth/tbills/res_tbill_rates.htm

"Bills are typically sold at a discount from the par amount (par amount is also called face value). The price of a bill is determined at auction. Using a single $100 investment as an example, a $100 bill may be auctioned for $98. You would pay $98 for the bill at purchase and you would get $100 when the bill matures. The difference of $2 is your interest. Unlike Treasury notes, Treasury bonds, and Treasury Inflation-Protected Securities (TIPS), bills don't pay interest every six months."

 

[gwraigty]

Thanks. I'm still a bit confused (so what's new) there is no earned interest until maturity with a Treasury Bill. Are you saying, there IS a tax obligation prior to maturity?

Not if you hold it until maturity.

 

[ARB57]

Thanks All! Helpful as always.

 

[JoeWras]

There are Bills and Notes. Are they treated differently. They are not the same.

Edit: And this was mentioned above and I think it was answered.