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 portion of earnings withheld by an employer or put into a retirement plan for distribution to the employee at a later date. If certain legal requirements are met, the deferred amount is not taxable until actually paid, for example, after retirement.