Final answer:
The interest payments from a bond issued by the government of Sweden to a U.S. citizen are subject to federal taxation. State and local taxation may also apply depending upon individual state laws regarding foreign income. Consulting a tax professional or referring to IRS guidelines is recommended for specific details.
Step-by-step explanation:
When a U.S. citizen purchases a bond issued by the government of Sweden, the interest payments received by that individual are subject to taxation primarily at the federal level. Because the bond is issued by a foreign government, it falls under the context of international taxation, which is within the purview of the U.S. federal government. While federal taxes are typically on a sliding scale based on income, it is important to consult with a tax professional or refer to the IRS guidelines for specific information on the taxation of foreign bond interest. State and local governments have their own tax systems; however, generally, foreign income tax pertains to federal taxes. The Tax Policy Center website provides additional resources to understand the nuances of the U.S. tax system.
It is also notable that state and local taxes may apply, depending on the state's tax laws concerning foreign investment income. Most state tax codes start with the federal adjusted gross income, which includes interest from foreign bonds, and then apply state-specific adjustments. Some states offer tax credits for foreign taxes paid. Confirming the particular state and local tax requirements with a qualified tax consultant is advisable.