Taxation on T-bills - How are they reported on 1099-INT vs bank interest?

T-bills are indeed taxed as interest income, but there are some specific nuances worth understanding. For your first question, brokerages like Vanguard and Fidelity will report T-bill interest on Form 1099-INT, not as capital gains. The interest is reported in Box 3 "Interest on U.S. Savings Bonds and Treasury obligations" rather than Box 1 where regular bank interest appears. The important thing is that it's still treated as interest income for federal tax purposes, taxed at your ordinary income rate just like bank interest. However, there's a nice bonus - T-bill interest is exempt from state and local income taxes! Regarding your second question, you're correct. For T-bills purchased at a discount and held to maturity, the interest (difference between purchase price and face value) is reported in the year the bill matures, not when purchased. So a T-bill purchased in 2023 that matures in 2024 would show the interest income on your 2024 tax forms, not 2023.

I had similar questions last year and found a helpful resource! I've been using https://taxr.ai for deciphering all my investment tax documents. It really saved me when I got confused about my T-bill reporting from Schwab. You just upload your 1099 forms, and it explains exactly how everything should be reported and where it goes on your tax forms. It actually pointed out that my T-bill interest was properly in Box 3 and confirmed it was exempt from state taxes, which saved me a nice chunk since I'm in California. It also clarified the maturity year reporting issue, which was exactly what you're asking about. Really helpful for making sure you're not missing deductions or messing up the timing of income reporting.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was super helpful! I uploaded my 1099s from Vanguard which had a mix of T-bills and other investments. It confirmed exactly what was discussed here - my T-bill interest showed up in Box 3, and I didn't have any reported interest for T-bills purchased in 2023 that mature in 2024. The service also flagged that I could exclude the T-bill interest from my state taxes (saved me about $300 in state taxes I would have accidentally paid!) The nicest part was it explained all the different boxes on the 1099-INT and showed me where everything needed to go in TurboTax. Definitely worth checking out if you're confused about investment taxes like I was.

If you need to contact the IRS directly about how Treasury securities are taxed, good luck getting through on the phone! I spent 3 hours on hold last year trying to get clarification. I eventually used https://claimyr.com which got me connected to an IRS agent in about 20 minutes instead of hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that T-bill interest is reported in the year of maturity and appears in Box 3 of the 1099-INT. Also verified that it's only subject to federal taxes, not state or local. Definitely saved me from making an error on my return!

Well I need to eat my words from my earlier comment. I was super skeptical about Claimyr but I needed to talk to the IRS about some Treasury bond questions that were similar to the OP's, and the online info was confusing. Called the IRS myself first - sat on hold for 45 mins then got disconnected. Frustrated, I tried the Claimyr service, thinking it was probably a waste. But within 15 minutes I got a call connecting me to an actual IRS agent! The agent clarified that yes, T-bill interest is only taxable in the year of maturity (for bills bought at auction), and confirmed it's exempt from state taxes. Saved me both time and potentially filing incorrectly. Consider me converted - sometimes skepticism is warranted but sometimes things actually work.

Just a heads up - there's another wrinkle if you sell T-bills before maturity. If you sell early on the secondary market, you'll get a 1099-B form instead, and there might be capital gains/losses to report depending on if interest rates changed after your purchase. I sold some 52-week T-bills after 6 months last year when rates jumped higher, and it was reported differently than my T-bills held to maturity. Something to keep in mind!

Am I the only one who had issues with Fidelity's reporting? My T-bills matured in 2023 but some of the interest showed up in a supplemental 1099-OID form rather than the 1099-INT. Confused the heck out of me.

This is a great discussion! As someone who's been investing in T-bills for a few years now, I can confirm what others have said about the tax treatment. Just wanted to add a few practical tips: 1. Keep good records of your purchase dates and amounts - especially if you're laddering T-bills throughout the year. It makes tax time much easier when you can quickly match up your 1099 forms with your actual purchases. 2. If you're in a high-tax state, the state tax exemption on T-bills can be a significant advantage over CDs or high-yield savings accounts. I'm in New York and this saves me a meaningful amount each year. 3. For those using tax software, most major programs (TurboTax, FreeTaxUSA, etc.) handle T-bill reporting pretty well once you know to look for Box 3 on the 1099-INT. The software usually asks specifically about "Interest on government obligations" which makes it clear where the T-bill interest should go. One thing I haven't seen mentioned - if you're doing estimated quarterly tax payments, remember that T-bill interest can create a big lump of taxable income in the quarter when multiple bills mature. Plan accordingly!