What is a Tax Anticipation Bill?
A tax anticipation bill is a Treasury bill that matures in fewer than 273 days and is repaid with tax receipts.
How Does a Tax Anticipation Bill Work?
For example, let's assume that the U.S. government is expecting a rather large inflow of tax receipts on April 15 -- the annual income tax filing deadline. Six months before the April 15 deadline, the government decides it would like to stabilize its cash inflows by issuing tax anticipation bills that mature on May 15. When tax payments come in on April 15, the U.S. government uses those funds to repay the tax anticipation bills, plus interest.
Why Does a Tax Anticipation Bill Matter?
The U.S. government has largely replaced tax anticipation bills with cash management bills. Nevertheless, tax anticipation bills are still an option for investors who want a low-risk, short-term investment. Tax anticipation bills are not issued according to a schedule like other Treasuries are. Rather, the government only issues them as necessary.
