Taxable Municipal Bonds

Taxable municipal bonds are debt securities issued by state or local governments or their agencies, where the interest earned is subject to federal income tax. Unlike tax-exempt municipal bonds, which offer tax-free interest to investors, taxable municipal bonds typically provide higher yields to compensate for the taxable income. They are often used to fund specific projects or meet budget needs, especially when the issuer cannot qualify for tax-exempt status. Investors in these bonds should consider their tax situation, as the interest income will be taxed at their ordinary income rates, impacting the overall return.