Interest Income

In general, any interest you receive through an account credit or other means is taxable income.

Taxable Interest Income

Federal Bonds
Industrial development bonds.
Corporate bonds.
Premium received for opening a savings account (e.e. prizes and awards) are included at FMV.
Part of the proceeds from an installment sale is taxable as interest.
Interest paid by federal or state government for late payment of tax refund is taxable.
For certain taxpayers and certain bonds, amortization of a bond premium is offset(reduction) to the interest received and a reduction to the bond’s basis, and amortization of a bond discount is an addition to the interest received and an addition to the bond’s basis.

Tax Exempt Interest Income is reportable but not taxable.

State and Local Government Bonds/Obligations

Interest on state and local bonds/obligations is tax/exempt. Mutual fund dividends for funds invested in tax-free bonds are also tax exempt.
Bonds of U.S. Possession

Interest on the obligation of a possession of the United States is tax exempt.
Series EE (U.S. Savings Bonds)

It is used to pay for higher education, reduced by tax-free scholarships, of the taxpayer, spouse, or dependents;
There is taxpayer or joint ownership (spouse);
Taxpayer is over age 24 when issued; and
The bonds are acquired after 1989.

Phase-out starts when modified AGI exceeds an indexed amount. (For 2012, phase out begins at $72,850 for single and head of household and $109,250 for married filing joint. There is no exclusion for those using the married filing separately status.

Veterans Administration Insurance

Interest on Veterans Administration Insurance is tax exempt.