Updated August 13, 2026. Quick answer: a Treasury bill and a CD are taxed identically by the federal government and differently by your state, so the entire comparison collapses to one number: the CD yield that ties the T-bill after your state takes its cut. At a 4.25% bill, a CD has to pay 4.69% to tie in a 9.30%-marginal state and only 4.25% where there is no state income tax. The state dimension belongs in a box on this page, not in fifty pages.
The calculator
Why it reduces to one number
Both instruments are fully taxable federally, so the federal rate appears on both sides of the comparison and cancels. What does not cancel is the state layer, because Treasury interest is exempt from it by statute:
“(a) Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except-…” — uscode.house.gov
The IRS says the same thing from the other side: Treasury interest is “exempt from all state and local income taxes”, and TreasuryDirect states it on the product page itself. So the break-even is simply the bill’s yield divided by one minus your state and local rate. Our page on the breadth of that exemption covers the part of the statute most summaries drop.
What it takes to beat a 4.25% bill
| Your state layer | Marginal rate | CD must pay | Premium required |
|---|---|---|---|
| a state with no income tax | 0.00% | 4.25% | 0.00% more |
| Pennsylvania-style 3.07% | 3.07% | 4.38% | 0.13% more |
| New York-style 6.85% | 6.85% | 4.56% | 0.31% more |
| California-style 9.30% | 9.30% | 4.69% | 0.44% more |
| California top-rate 13.30% | 13.30% | 4.90% | 0.65% more |
Read the bottom row carefully, because it is the one that changes decisions: in a 13.30% bracket a CD advertising half a point more than the bill is still the worse deal. Rates in the table are illustrative marginal rates used to show the arithmetic — put your own in the box.
Where the cash sits is a decision of its own
Comparing one place to hold money against another answers part of the question; how much belongs in cash at all, and what the rest should be doing, is the other part, and an adviser can work through both with you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide is paid when you submit the form, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
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What the arithmetic leaves out
- The federal deduction for state tax. If you itemise and are under the SALT cap, part of your state tax comes back, which shrinks the advantage. Most filers take the standard deduction; the calculator assumes no deduction and therefore states the T-bill’s case at its strongest.
- Term and liquidity. A bill is sold in a deep market; an early CD exit is a penalty. Same yield does not mean same instrument.
- Insurance. A CD is a deposit and is insured to the limit; a bill is a direct obligation of the Treasury and is not insured because it does not need to be. Our allocator handles the deposit side of that.
- Where the bill’s return comes from. Bills are issued at a discount, and the IRS treats the difference at maturity as interest, not as a capital gain.
What we could not establish, and are not going to invent
One thing this page will not claim:
- An IRS statement that CD interest is taxable by your state. There is none, and there could not be: the IRS speaks to federal tax. What we can source is the asymmetry — CD interest is includible in federal income and carries no federal exemption from state tax, while Treasury interest has one by statute. Your own state’s treatment of bank interest is a question for your state’s revenue department, and this page does not assert it.
Related: rolling a bill ladder · brokered CDs vs bank CDs · the cap-aware CD ladder.
Sources
The exemption is read from the United States Code itself and confirmed against both the IRS and TreasuryDirect on August 13, 2026.
| What it establishes | Read at |
|---|---|
| 31 U.S.C. 3124(a) exempts U.S. government stocks and obligations (including Treasury bills/notes/bonds) from state and local taxation, with narrow carve-outs for nondiscriminatory corporate franchise taxes and estate/inheritance taxes. | uscode.house.gov |
| The tax status/treatment of interest on and gains/losses from federal obligations is governed by the Internal Revenue Code, not by 3124(a) itself, except for DC/territorial issuers which are excluded from subsection (b). | uscode.house.gov |
| TreasuryDirect’s own product page states Treasury bill interest is subject to federal tax but not state or local tax. | www.treasurydirect.gov |
| IRS’s own publication states Treasury bill/note/bond interest is subject to federal income tax but exempt from all state and local income taxes. | www.irs.gov |
| IRS Pub 550 confirms CD interest (and other deferred-interest bank accounts) must be included in taxable income federally — there is no federal exemption comparable to 31 U.S.C. 3124 for bank deposit interest. | www.irs.gov |
| Treasury bills are sold at a discount, and the difference between the discounted purchase price and face value received at maturity is treated as interest income, generally reported when the bill matures. | www.irs.gov |
Cite or share this calculator
Suggested citation: Clear Money Guide, “T-Bill vs CD After-Tax Calculator (2026),” statute-cited; clearmoneyguide.com/t-bill-vs-cd-after-tax-calculator/. Free to cite with attribution.
Methodology: both instruments are taxed federally, so the federal rate cancels and the break-even CD yield is the bill’s yield divided by one minus the state and local marginal rate, the exemption resting on 31 U.S.C. 3124(a). The tool ignores any federal deduction for state tax, which is the conservative direction for the CD. No login and no email capture.
General information, not tax advice. Marginal rates, surtaxes and local income taxes vary and the figures in the table are illustrative; use your own rate. Nothing here is a recommendation about any particular bill, CD or bank.