T-bill state tax: what the exemption is worth in each state

Fifty states and the District of Columbia

The table applies each state's 2026 schedule, or the latest published one, to a single filer with $100,000 of taxable income, in a 22 % federal bracket, and to the latest 26-week bill at 4.351 %. The fourth column is the yield a CD or a savings account must pay to leave as much after federal and state tax. State names shown as links lead to a page that details that state's schedule and local taxes.

The median state rate at this income, among states that tax interest, is 4.99 %. At that median, the exemption is worth 0.297 percentage point of extra CD yield. For California, Idaho and Vermont, the 2026 schedule was not yet published when the site was built, so the table uses the 2025 one.

Reading the result for a household

Take a married couple in New York State, outside New York City, filing jointly with $120,000 of taxable income. Their federal rate is 22 % and their state rate 5.40 %, so the 26-week bill at 4.351 % is worth a CD rate of 4.675 %. Living in the city adds 3.876 % of city tax, and the matching rate becomes 4.938 %. On $25,000 kept in bills for a year, the state and city tax avoided comes to about $101. The calculator above starts from this case; change the state, the income and the status to get your own figure.

Where it matters most

The exemption is worth most where the marginal rate on interest is high, which depends on income as well as on the state. California has the highest top rate in the country but a long middle bracket: at $100,000 the rate is 9.30 %, at $1,500,000 it is 13.30 % with the mental health services tax, and the matching CD rate rises to 5.515 % even though the federal rate is also higher. New York City and the Portland area add local taxes on top of the state rate, and Maryland counties add between 2.25 % and 3.30 %. Those local taxes reach interest too, so the exemption covers them as well; the calculator has fields for them.

The formula and its limits

The matching CD rate is the bill yield × (1 − federal rate) ÷ (1 − federal rate − state rate). It assumes the extra interest falls in a single federal and state bracket and that you take the standard deduction. If you itemize and deduct state income tax below the cap on state and local tax deductions, part of the state tax comes back as lower federal tax and the formula becomes yield ÷ (1 − state rate). The calculator also ignores credits and phase-outs that some states apply, such as New York's recapture of its lower brackets at high incomes, which make the real marginal rate higher than the bracket rate for some incomes. The T-bill versus CD page works through one household in detail.

What the law covers

Section 3124 of title 31 of the U.S. Code exempts stocks and obligations of the United States Government, and the interest on them, from taxation by a state or political subdivision of a state (31 U.S.C. 3124). It applies to Treasury bills, notes, bonds, TIPS and savings bonds. It does not cover obligations of agencies that are not the U.S. government itself, such as those of Fannie Mae or Freddie Mac; each state decides how to treat their interest under its own law. Interest on bank deposits, CDs and money market accounts is taxed by the state in the usual way.

Savings bonds

I bonds and EE bonds are covered by the same exemption. Their interest is usually reported in the year the bond is cashed, which can be decades after purchase, and the state subtraction applies in that year. The table works for them with their own rate in place of the bill yield: the I bond rates page has the current one. Federal tax on savings bonds, including the option to report interest each year, is on the savings bond tax page.