Updated October 5, 2026. Quick answer: Yes. Idaho taxes interest and dividends at one rate: “Effective January 1, 2025, the individual income tax rate is 5.3%.” Interest on U.S. obligations is exempt, and interest on other states’ municipal bonds is added back.
How Idaho treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate |
| Rate | 5.3%; the Code prints “five and three-tenths percent (5.3%) of taxable income over” |
| Zero-rate amount | The booklet’s worksheet first subtracts a filing-status amount: “Single or married filing separately, enter $4,811”, or $9,622 for joint filers, heads of household and surviving spouses |
| Dividends | Entered from federal Form 1040 line 3b |
| Other states’ bonds | Form 39R adds back interest and dividends from “municipal bonds of other state governments, their counties, and their cities,” and Idaho municipal securities are not part of that addition |
| U.S. obligations | Idaho does not tax interest from U.S. government obligations, but “Idaho taxes interest income received from the Federal National Mortgage Association” |
| Mutual funds | For a fund that holds both kinds, “The mutual fund must identify this amount for it to be deductible.” |
A $20,000 example
Taxable dividends and interest of $20,000 add $20,000 x 5.3% = $1,060 of Idaho tax once the zero-rate amount is used up by other income.
What changes in 2026
No change is enacted. H.B. 589 (2026) would set 5.695% for 2027 and 5.3% from 2028, but the Legislature’s status page, read October 5, 2026, shows only “Introduced, read first time, referred to JRA for Printing”, so 5.3% stands.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Idaho taxes capital gains, whether Idaho taxes pensions, how Idaho taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 Idaho Individual Income Tax Booklet (EIN00046): https://tax.idaho.gov/forms/EIN00046/EIN00046_12-31-2025.pdf
- Idaho Code section 63-3024, Individuals’ tax and tax on estates and trusts: https://legislature.idaho.gov/statutesrules/idstat/title63/t63ch30/sect63-3024/
- House Bill 589 (2026) bill text: https://legislature.idaho.gov/wp-content/uploads/sessioninfo/2026/legislation/H0589.pdf
- House Bill 589 (2026) status page, fetched 2026-10-05: https://legislature.idaho.gov/sessioninfo/2026/legislation/H0589/
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.