alleryStart learning →How is the interest earned on U.S. government securities taxed?
AIt is free of every tax at all levels
BIt is taxed by states but not federally
CIt is taxed at every level of government
DIt is taxed federally but not by states
Answer & Solution
Correct answer: D. It is taxed federally but not by states
1. Interest earned on government securities is subject to federal income tax.
2. The same interest is free from state and local income taxes.
3. Municipal bonds run the other way: their interest is exempt from federal income tax.
4. Interest on corporate bonds, by contrast, is fully taxable at every level.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.6 Securities Markets_
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