Bonds pay interest, not dividends and they are fully taxable as ordinary income.Government bonds like Treasuries are free of state and local income taxes but interest is taxed by the Feds at ordinary income tax rates.Muni bonds are free of federal taxes but usually taxable state and locally. However, double tax free bonds, free of state income taxes in the state where issued (ie you have to buy one issued in the state where you live) are available in some state. Double tax free munibond funds are available in many states.Triple tax free bond funds (from of fed, state, and local income taxes) are available in a few areas, typically New York City.
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