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Interest from U.S. Obligations

Utah Code §59-10-114(2)(a)

Interest earned on U.S. government obligations issued by an agency or instrumentality of the United States is exempt from state income tax. U.S. government obligations include:

• Treasury bills,
• Notes, and
• E, EE, H, HH, and I bonds

Income NOT exempt from Utah state income tax includes:

• Interest or dividends from Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA); and
• Interest on refunds from the IRS or any federal agency.

For further questions about taxability of interest income, you may use the following test developed by the U.S. Supreme Court in Smith vs. Davis, 323 U.S. 111 (1944) to determine if the instrument qualifies as a U.S. Government obligation. The instrument must:

1. Be a written document,
2. Bear interest,
3. Contain a binding promise by the U.S. government to pay a specific sum on a specific date, and
4. Have congressional authorization to pledge the full faith and credit of the United States in support of the promise to pay.

Only interest or dividend income from U.S. government obligations included in your federal adjusted gross income is exempt from state income tax. Before entering an amount, subtract any related expenses claimed as deductions on your federal return, such as interest expense on money borrowed to purchase bonds or securities, or ordinary and necessary expenses paid or incurred in connection with producing exempt income.

Keep all personal records, forms and worksheets to support this deduction.

Qualified U. S. government interest is calculated on TC-40 S, Income Tax Supplemental Schedule, and claimed as a deduction from income on line 13. The codes and names of each deduction are: