Interest is income you receive from a debt instrument (such as a bond). When you buy a bond, you’re lending money to an issuer, and the issuer pays you interest in return.
Unlike dividends, interest generally doesn’t receive favorable tax treatment. That said, the tax rules depend on who issued the bond, and some interest may be exempt from certain taxes.
As a reminder, here’s the tax status of different types of bond issuers:
US Government debt
Mortgage-backed securities
Municipal debt
Corporate debt
If taxes are due, the federal tax rate applied to interest is the investor’s federal marginal income tax bracket. Interest is taxed the same as non-qualified dividends (as discussed in the previous chapter). As of the tax year 2025, these are the income tax brackets for individuals and those filing jointly:
| Rate | Individuals | Married filing jointly |
|---|---|---|
| 10% | $0 | $0 |
| 12% | $11,926 | $23,851 |
| 22% | $48,476 | $96,951 |
| 24% | $103,351 | $206,701 |
| 32% | $197,301 | $394,601 |
| 35% | $250,526 | $501,051 |
| 37% | $626,351 | $751,601 |
Do not memorize these tax brackets; this chart is only for context.
State taxes depend on the state, and you don’t need to know the specifics. Interest is reported annually on form 1099-INT.
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