Are the earnings from a city municipal bond taxable?

Earnings from a city municipal bond are generally considered tax-exempt at the federal level. This means that the interest income earned on these bonds is not subject to federal income tax, making them an attractive investment for those in higher tax brackets.

Municipal bonds are issued by states, cities, and local government entities to fund public projects. The tax-exempt status serves as an incentive for investors to purchase these bonds, as it allows them to earn interest without the tax burden that other types of investments carry. In some cases, specific municipal bonds may also be exempt from state and local taxes, depending on the investor's residence.

While there can be exceptions, such as certain alternative minimum tax considerations or potential taxation at state and local levels for individuals who do not reside in the issuing municipality, the general rule is that the interest income from these bonds remains exempt from federal income tax. This significant benefit is what leads many investors to favor them for their tax-advantaged status.