Is Treasury interest taxable in California?
Short answer: federally yes, in California no. Interest on U.S. Treasury bills, notes and bonds is included in your federal gross income, but California does not tax it. By contrast, interest from a high-yield savings account, CD, or money market account, and bank sign-up bonuses, are taxed by both the IRS and California.
Why it's exempt
- Federal law: Treasury bills "shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State" (31 CFR § 309.4). The discount at which a bill is sold counts as interest.
- California regulation: "Interest on bonds and other obligations of the United States… is exempt from state taxation" (18 CCR § 24271(e)).
- FTB guidance: "California does not tax this interest income" (FTB Publication 1001).
How to claim it
Your 1099-INT shows Treasury interest in Box 3 ("Interest on U.S. Savings Bonds and Treasury obligations"). Per FTB Pub. 1001, subtract it on Schedule CA (540), Part I, Section A, line 2, column B (nonresidents/part-year: Schedule CA (540NR), Part II). Tax software usually does this automatically if you enter Box 3 correctly.
Watch-outs
- Not every "government" bond counts. Fannie Mae, Ginnie Mae and Freddie Mac interest is not a U.S. obligation for California and is taxable (FTB Pub. 1001).
- Treasury money market funds and ETFs: California exempts the portion of dividends from U.S. obligations only if at least 50% of the fund's assets are exempt obligations; check the fund's year-end statement.
- Bank bonuses and HYSA interest are fully taxable in CA, reported on 1099-INT or 1099-MISC. See our 1099 database.
What it's worth: a quick example
Run your own numbers in the T-bill vs HYSA vs Bonus calculator →
General information only, not tax advice; rules can change. Consult a tax professional about your situation.