When treasury bills are sold to pay for university tuition, are they subject to income tax?

Question

Specifically, the seller of the T-bill is still registered as a dependent.

Answer 1

T-bills are always subject to income tax (federal only, no state or local).

The exception for bonds going to tuition is for savings bonds and only if they were bought since 1989 and in the name of somebody who is 25 years old or more when bought (generally the parents).

But of course, you are eligible for the education credits (or your parents are if they still can declare you as a dependent) for that tuition.

Answer 2

A treasury security held by a dependent is not going to be exempt from federal income tax under any circumstances.

A dependent will not pay income tax if the interest income from the security is $850 or less.  If this is the dependent's only income, no tax return has to be filed.

If the investment income is more than $850, the dependent will have to file a tax return and pay income tax.

Answer 3

The interest is taxable.  There are exceptions in certain circumstances for savings bonds, but not T-bills, from being taxed.