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Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →For a U.S. individual who holds a Treasury bill to maturity, the discount—the difference between what you paid and the bill’s face value—is generally interest income. It is taxable federally but exempt from state and local income taxes. The interest is generally reported in the year the bill matures, not necessarily the year you receive cash if maturity falls near year-end.
How the discount becomes taxable interest
Treasury bills are generally sold for less than their face value and pay the face value at maturity. For the typical hold-to-maturity purchase, the difference between the purchase price and the amount received is interest income, not a capital gain. Bills commonly have terms of 4, 8, 13, 26 or 52 weeks. IRS Publication 550 explains the tax treatment and says the interest is generally reported when the bill is paid at maturity.
If you reinvest the maturity proceeds, that does not eliminate the reporting requirement: Publication 550 says the full interest on a bill must be reported by maturity even when the proceeds are reinvested.
Federal, state and local taxes
Treasury bill interest is subject to U.S. federal income tax. Interest from Treasury bills, notes and bonds is exempt from state and local income taxes, as confirmed by IRS Topic No. 403 and TreasuryDirect. This exemption applies to the interest; it does not settle every state filing question or the treatment of a sale, gain or other transaction. Follow the rules that apply to your state and circumstances.
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When to report the interest
For the usual individual hold-to-maturity case, the maturity date generally determines the tax year. TreasuryDirect says it reports bill interest on Form 1099-INT as of the maturity date. For a bill maturing at year-end, the form reflects that maturity date even if the cash payment occurs in the following year. Check the maturity date and the current IRS instructions for the return year rather than relying only on when funds appeared in your account. TreasuryDirect’s tax forms and withholding guidance describes its reporting.
Where the amount appears on Form 1099-INT
IRS Publication 550 says an individual should receive Form 1099-INT showing Treasury interest in box 3. TreasuryDirect also explains that its information returns report interest and gains that may be subject to federal tax. Compare the form with your purchase confirmation and maturity records, especially if the reported amount does not match what you expected.
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- Keep the purchase confirmation, which records the price paid.
- Keep the maturity or payment record showing the amount received and date.
- Use the current IRS instructions for the relevant tax return if the information return and your records differ; seek qualified tax help if the discrepancy remains unresolved.
IRS Publication 1212 provides additional information-reporting context for original-issue-discount instruments and short-term obligations redeemed at maturity, including payer rules when purchase-price information is unavailable. It does not resolve every taxpayer’s individual calculation.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Cases that need more than the basic rule
You paid more than face value
Publication 550 says that when a holder pays a premium—more than face value—the premium is generally reported as a section 171 deduction when the bill is paid at maturity. This is the IRS’s general rule; the result can depend on the security and applicable elections, so do not assume it covers every purchase.
You bought in the secondary market or sold before maturity
A secondary-market purchase, an early sale or exchange, or unusual discount and basis facts can involve additional short-term-obligation rules and calculations. The basic purchase-price-to-face-value explanation is for a typical hold-to-maturity case; it is not a complete method for working out every sale or secondary-market transaction. Keep transaction records and consult the relevant IRS guidance or a tax professional for the specific facts.
Your account or ownership is not an individual taxable account
The general explanation here is for an individual holding a bill to maturity. Trusts, businesses, partnerships, retirement accounts and nonresident taxpayers may have different reporting or tax rules. The information return alone may not answer how those situations should be reported.
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