Are Treasury bills exempt from state income tax?

U.S. Treasury interest is generally exempt from state and local income tax, while it remains subject to federal income tax.

Can a HYSA still win?

Yes. A sufficiently higher HYSA APY can beat T-bills after tax, especially in lower-tax states or for users who value simplicity.

After-tax cash yield

High-yield savings vs T-bills after tax High-yield savings leads

At a 24% federal and 6% state tax assumption, 4.40% HYSA is about 3.08% after tax, while a 3.66% T-bill is about 2.78% after tax because Treasury interest is generally exempt from state income tax.

Run after-tax calculator Compare high-yield savings offers

Answer

The better pre-tax APY is not always the better after-tax yield.

For state-tax-sensitive savers, a lower quoted T-bill yield can compete with a higher taxable savings APY. Liquidity, simplicity, and purchase mechanics still matter.

Caveat

Use tax-equivalent yield as a screen, not tax advice.

Federal, state, local, and account-specific tax rules can vary. This page models the common state-tax exemption for U.S. Treasury interest.