Treasury Bill (T-Bill) vs. Bank CD State-Tax-Adjusted Yield Calculator
Calculate state-tax equivalent yields under 31 U.S.C. § 3124 to discover why a 4.8% T-Bill beats a 5.2% bank CD in high-tax states like CA, NY, and NJ.
US Treasury Bills (T-Bills) are 100% exempt from state and local income taxes under 31 U.S.C. § 3124, whereas Bank Certificates of Deposit (CDs) are fully taxable at federal, state, and city levels. In high-tax states like CA, NY, and NJ, a lower-yielding T-Bill frequently generates higher after-tax cash in your pocket than a higher-yielding CD.
Scenario Parameters
Net After-Tax Cash Return: Treasury Bill vs. Bank CD
How the Treasury Bill (T-Bill) vs. Bank CD Tax-Adjusted Yield Calculator Works: Plain-English US Tax Guide
When parking short-term cash for 1 to 12 months, conservative US savers compare US Treasury Bills against Bank CDs and High-Yield Savings Accounts (HYSAs).
The Statutory Tax Advantage of US Treasuries: Under federal statute 31 U.S.C. § 3124, obligations of the United States Government (Treasury bills, notes, and bonds) are completely immune from taxation by or under State, municipal, or local authority. Bank CDs, corporate bonds, and commercial bank savings accounts, by contrast, are fully taxable ordinary income at federal, state, and city levels.
The State-Tax-Adjusted Equivalent Yield Formula: To find the CD interest rate required to equal a state-tax-free T-Bill, use: Equivalent CD Yield = T-Bill Yield ÷ [1 - (State Tax Rate * (1 - Federal Tax Rate))] In California (up to 13.3% state bracket) or New York City (up to 10.9% state + 3.876% city tax), a 4.80% T-Bill produces a higher net take-home return than a 5.40% bank CD!
Default Risk & Liquidity: - T-Bills: Backed by the full faith and credit of the US Federal Government. They can be sold anytime before maturity on the secondary market with zero penalty. - Bank CDs: Insured up to $250,000 per depositor by the FDIC. Breaking a CD early incurs severe Early Withdrawal Penalties (often 3 to 6 months of interest).
This calculator computes the exact state-tax-adjusted yield and shows the net after-tax cash difference across all 50 US states.
Case Study: San Francisco Investor Comparing 5.25% Bank CD vs. 4.85% 6-Month T-Bill on $100,000
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Nominal Rates: Bank CD offers 5.25% APY ($2,625 pre-tax for 6 months). T-Bill offers 4.85% ($2,425 pre-tax for 6 months).
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Bank CD Taxation: Kevin pays 32% federal ($840) + 9.3% California ($244) = $1,084 total tax. Net Cash in Pocket = $1,541.
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T-Bill Taxation: Kevin pays 32% federal ($776) + $0 California state tax! Net Cash in Pocket = $1,649.
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The Verdict: Despite having a nominal interest rate that is 0.40% lower, the T-Bill puts $108 more net cash in Kevin's bank account over 6 months because of California's state tax exemption.
Key 2025 / 2026 Statutory Thresholds & IRS Rules
| Statutory Provision / Rule | 2025 / 2026 Benchmark | Impact on US Taxpayers |
|---|---|---|
| 31 U.S.C. § 3124 Exemption | Federal Statutory Exemption | Prohibits all states and municipalities from taxing interest on US Treasury securities. |
| FDIC Insurance Limit | $250,000 / Depositor / Bank | CDs are protected up to $250,000; T-Bills have unlimited US government backing. |
| Discount Basis Issuance | Original Issue Discount | T-Bills are sold at a discount to par and mature at full face value; interest is the discount difference. |
| Form 1099-INT Box 3 | Treasury Interest Reporting | Reported separately from bank interest (Box 1) so tax software automatically exempts it from state returns. |
Costly Mistakes & IRS Tax Traps to Avoid
Taxpayers who report T-Bill income in Box 1 instead of Box 3 on tax software mistakenly pay state taxes on tax-exempt interest.
Cashing out a CD before maturity wipes out months of interest; T-Bills can be sold freely in secondary markets without penalty.
General money market funds hold commercial paper and repos, which lose partial state tax exemption compared to 100% Treasury funds (e.g. SNSXX, FDLXX).
Statutory Audit Trail & Policy Context
| Calculation Step / IRC Statutory Line | Amount ($) | Tax Policy Authority & Notes |
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Click any state card below to dynamically reload the calculator with that state's exact income tax rates, franchise fees, and statutory rules.
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