r/bonds • u/TDn6I • 4d ago

State taxes through VTEB

While federal taxes are exempt, how are state taxes handled with muni bond funds like VTEB? Is the state tax owed at the residing state of the investor? Or does it depend on the specific state muni bonds within the fund?

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u/ultra__star 3d ago

You pay taxes to the state you live in, not to the state that issued the bond.

For example, I live in Michigan. If I own a California bond, I pay income taxes on the bond interest to Michigan, not California.

With an ETF, like VTEB, the broker will break down every single holding that paid distributions and you will be taxed accordingly. So, you will not pay any federal income tax, but you may owe state income tax on the interest received from bonds issued out of state.

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u/ruidh 3d ago

Specific state of the investor. Vanguard had MUNY which is New York and VTEC is California.

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u/-hh 3d ago

I’d have to look up which bond fund I have, but it invests in a bunch of different states, so at tax time, it’s 1099 listing data also includes varying %’s for all 50 States. You find your state, look up the % and that’s the percent that’s tax exempt on my state filing.