Interest taxation
In most of the cases , Interest income taxation is accumulated for the taxpayer taxable income and taxed under regular negligible tax rates.
Some bonds are exempt from tax according to section 103 of the American tax code.
The best example is local authority and state bonds.
For an individual receiving social security pensions, the exempt interest is taken into account if their pension income is taxed.
It should be noted that the tax treaty also determines that social security payments are tax exempt.
Thus, this is inapplicable for individuals living in Israel.
Trust funds invested in exempt bonds will also produce exempt interests for their holders.
Taxation of these bonds significantly differs from one state to the other.
Some states in the U.S grant full exemption for all such bonds, others exempt only bonds issued within their jurisdiction, and others tax bond interest income.
Foreigners are eligible for more exemptions from tax withholding for interest income.
Some examples include tax exemption for bonds issued by states and local authorities (such as US citizens).
Interest exemption for deposits and savings managed by financial institution in the US, and exemption from portfolio interest for sophisticated investors.