While the interest is not subject to income tax, it must be reported on your federal income tax return. If you collect Social Security benefits, the interest is taken into account in determining whether and to what extent the benefits are includible in gross income. And if any of the interest is on private activity bonds, the interest likely is taxable for alternative minimum tax purposes.
A tax technique for receiving a refund of back taxes by applying a deduction or credit from a current tax year to a prior tax year. For example, a business net operating loss may be carried back for two years.