Special Trivia Question for 8/25/26 - The State Tax Deduction That Most Often Gets Missed!

Which of these is potentially taxable at the state level, but usually not at the federal level?

A. Interest paid by the IRS for a delayed refund
B. Interest paid by a state for a delayed refund
C. Series I and Series EE Bonds
D. Municipal Bonds

Answers A & B are generally taxable, both at the federal and state level.

Series I (a.k.a. I-Bonds) and Series EE Bonds are another example of government interest that’s excludable at the state level.

Most municipal-bond interest is exempt from regular federal income tax. However, a state may tax interest from bonds issued by other states while exempting interest from its own state and local governments.