US government obligation interest · Also called: treasury interest, t-bill interest, state-exempt interest
Interest on Treasury bills, notes, and bonds held directly is exempt from state income tax but not federal. The mirror image of municipal interest.
Federal law exempts interest on US government obligations from state and local income tax (31 U.S.C. §3124(a)). RetIQ lets you mark the share of a cash/HYS account that is directly held Treasuries; that share drops out of state taxable income. It stays fully in federal ordinary income, however, and it still counts toward Social Security benefit taxation, Medicare IRMAA, and ACA subsidies.
This is the opposite of municipal interest, which is federally exempt but state-dependent. The exemption covers interest only — a capital gain from selling a Treasury before maturity is not exempt. The field is for directly held obligations: Treasury funds and ETFs follow separate, often threshold-based state rules.