Tax-Exempt Interest

Certain types of interest are exempt from federal income tax. Bonds issued by the following entities generally pay tax-exempt interest:

• District of Columbia
  
  
• U.S. possessions and political subdivisions
  
  
• States, counties and cities

Although tax-exempt interest is not taxable, the taxpayer must report all tax-exempt interest on Form 1040, 1040A or 1040EZ.

	Specific examples of governmental entities that may issue tax-exempt bonds include port authorities, toll-road commissions, utility service authorities, community redevelopment agencies, qualified volunteer fire departments, and some mutual funds.