California Top Marginal Rate (13.3%) 31 U.S.C. § 3124 Exempt 13.30% Tax Shelter

California T-Bills vs HYSA Calculator: State Tax Exemption & Net Yield

California taxes bank interest, CDs, and non-government bonds as standard ordinary income up to 13.3% (or 14.4% including the 1.1% state disability insurance surtax on uncapped earnings). U.S. Treasury obligations are completely exempt from California personal income tax. 31 U.S.C. Section 3124 strictly prohibits states from taxing interest on direct U.S. Treasury obligations. While HYSA interest is subject to California 13.3% ordinary income tax, Treasury bill interest is 100% state-tax exempt.

Compare Other High-Tax States:

California (13.3%) New York City (14.8%) New York State (Outside NYC) (10.9%) Massachusetts (9.0%) New Jersey (10.8%)

Cash & Yield Inputs

Cash Balance $100,000

$10k $250k $500k $1M

U.S. T-Bill Nominal Yield 4.65%

Bank HYSA Advertised APY 4.25%

Federal Marginal Bracket

⚖️ Federal Preemption: 31 U.S.C. § 3124

Under federal law, states and municipalities are constitutionally barred from taxing interest earned on direct U.S. Treasury bills. In California, your effective state tax rate on T-Bills is exactly 0.00%.

Tax-Equivalent Yield (TEY) in California

5.36% Your bank HYSA must pay at least 5.36% APY to match a 4.65% T-Bill after paying California taxes.

Net Annual Cash Delta +$817 in pocket

State Tax Eliminated $565 saved/yr

Yield & Tax Deductions: Direct Comparison

Metric	U.S. Treasury Bill	Bank HYSA	Advantage
Gross Annual Yield	4.65%	4.25%	+0.40% T-Bill
California Tax Rate	0.00% (Exempt)	13.30%	T-Bill (-13.30% Tax)
Gross Annual Interest	$4,650	$4,250	+$400
State & Local Tax Owed	$0.00	-$565	+$565 saved
Net After-Tax Cash	$2,930	$2,112	+$817
Net After-Tax Yield	2.93%	2.11%	+0.82%
Liquidity & Safety	US Government Credit (No Cap)	FDIC Insured ($250k Cap/Bank)	T-Bill Unlimited Safety

Multi-Balance Cash Matrix (California)

Exact dollar amounts earned and tax saved across deposit tiers at current yields.

Deposit Balance	T-Bill Net Cash	Bank HYSA Net Cash	State Tax Lost	Net Cash Advantage
$25,000	$732	$528	$141	+$204
$50,000	$1,465	$1,056	$283	+$409
$100,000	$2,930	$2,112	$565	+$817
$250,000	$7,324	$5,281	$1,413	+$2,043
$500,000	$14,648	$10,561	$2,826	+$4,086
$1,000,000	$29,295	$21,123	$5,653	+$8,173

Automate Your Fixed Income Strategy

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❓ Common Questions

Frequently Asked Questions: California T-Bills vs HYSA

Answers on state tax exemptions under 31 U.S.C. 3124 and Tax-Equivalent Yield math.

Are U.S. Treasury bills exempt from California state income tax?

Yes, under 31 U.S.C. Section 3124, direct obligations of the United States Government including Treasury bills, notes, and bonds are strictly exempt from state and local income taxes, saving California residents up to 13.3% or 14.4% in state taxes.

What is the California Tax-Equivalent Yield (TEY) for a Treasury bill?

The California Tax-Equivalent Yield is calculated as Nominal T-Bill Yield divided by (1 minus 0.133). For example, a 4.65% T-Bill equals a 5.36% APY in a commercial bank savings account for someone in the top California tax bracket.

Does an HYSA ever beat a T-Bill for a California resident?

A commercial bank HYSA only beats a Treasury bill if its advertised APY exceeds the T-Bill Tax-Equivalent Yield. When T-Bills yield 4.65%, an HYSA must pay above 5.36% APY to break even after paying California state tax.

How does secondary market liquidity work for Treasury bills in California?

Unlike bank CDs that charge early withdrawal penalties, Treasury bills can be bought and sold on the secondary market with zero fee trading through major brokerages like Fidelity, Schwab, or Vanguard during standard market hours.

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📥 State Tax Arbitrage Guide (PDF) One-Page Reference • Instant PDF

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