T-Bills Hit Different in High-Tax States. Here’s the Math by State.

Here’s something that almost nobody explains when they tell you T-bills are “comparable” to high-yield savings accounts: the comparison is wrong if you live in California, New York, New Jersey, Oregon, Minnesota, or about a dozen other states. In those places, T-bills don’t just match a good HYSA — they beat it, sometimes by a wide enough margin to genuinely change which product you should be in.

The reason is one of the more underappreciated quirks of US tax law. Interest earned on US Treasury securities — T-bills, T-notes, T-bonds — is exempt from state and local income taxes. Always has been, since the Constitution. Interest earned on an HYSA is not. It’s taxed at the federal level and at the state level, same as ordinary income.

In a state with no income tax, this distinction is irrelevant. Texas, Florida, Nevada, Wyoming, Alaska, South Dakota, Washington — if you live in one of these, the T-bill’s state tax exemption is worth exactly nothing, because you don’t pay state income tax anyway. For you, comparing T-bill yields and HYSA rates at face value is perfectly reasonable.

For everyone else, the comparison requires one extra step that most financial calculators don’t prompt you to take.

How to Calculate the Real T-Bill Advantage in Your State

The formula is straightforward. To find the taxable-equivalent yield of a T-bill in your state — that is, what HYSA rate you’d need to match the T-bill on an after-tax basis — divide the T-bill’s yield by (1 minus your state income tax rate).

The 6-month T-bill as of late June 2026 yields 3.93%, per Federal Reserve H.15 data.

In California, where the top marginal state tax rate is 13.3%: 3.93% ÷ (1 − 0.133) = 4.53%. An HYSA would need to pay 4.53% to match the T-bill after state taxes. No HYSA currently does that. The T-bill wins in California, no contest.

In New York, at 10.9%: 3.93% ÷ (1 − 0.109) = 4.41%. Same result — the T-bill is materially better than any current HYSA option for New York residents.

In Oregon at 9.9%: 3.93% ÷ 0.901 = 4.36%. T-bill still wins.

In Minnesota at 9.85%: T-bill equivalent yield = 4.36%.

In New Jersey at 10.75%: 4.41%.

In Illinois at 4.95%: 3.93% ÷ 0.9505 = 4.13%. EverBank’s current 4.10% HYSA is now almost exactly matched — at this tax rate, it’s a toss-up, and either works.

In Colorado at 4.4%: 3.93% ÷ 0.956 = 4.11%. Essentially a toss-up.

In Georgia at 5.49%: 3.93% ÷ 0.9451 = 4.16%. The T-bill is slightly ahead.

The Break-Even State Tax Rate

If you’re comparing a T-bill at 3.93% against an EverBank HYSA at 4.10%, the break-even is the state tax rate at which the T-bill’s after-tax return exactly matches the HYSA’s after-tax return. That rate is roughly 4.1%.

States with income tax rates above 4.1% — most of the US outside the no-tax states — should have residents who look seriously at T-bills over HYSAs for any cash that can be locked up for 3-6 months. States with rates at or below 4.1% (Indiana, Michigan, Pennsylvania, North Dakota) are closer to indifferent, and the HYSA’s liquidity advantage may tip it.

How to Apply This to Your Actual Situation

This analysis assumes you’re in your state’s top marginal bracket. If you’re not — if your income puts you in a lower bracket in a state with progressive rates — the advantage is smaller. California’s 13.3% applies to income above roughly $1 million. For income in the $100,000-$300,000 range, California’s state rate is more like 9.3-10.3%, which still produces a significant T-bill advantage but not quite as stark.

Know your effective state rate, not just the top marginal rate. Your tax return from last year will show what you actually paid in state taxes as a percentage of adjusted gross income. That’s the number to use in the formula.

One practical note on timing: if you’re looking at this in December, buying a T-bill that matures in January means the interest is taxable in the new year, potentially deferring the income for a year. This is a minor benefit but worth knowing if you’re close to a bracket threshold or expecting a lower-income year ahead.

T-bills are available through most brokerages with no minimum — the actual process of buying them is covered in this post on brokerage vs. TreasuryDirect. The state tax calculation just determines whether you should bother. In most states with meaningful income taxes, the math strongly suggests you should.

The broader cash allocation picture — where the T-bill fits alongside HYSAs, CDs, and money market funds — is in the original HYSA rate guide. The state tax calculation is the piece that turns “roughly comparable” into “clearly better” for about two-thirds of the US population.