Final answer:
Original issue discounts on corporate bonds are not taxed as they are earned. This contrasts with interest from savings accounts and money market accounts, which is typically reported and taxed annually.
Step-by-step explanation:
The correct answer to which type of interest income is not taxed as it is earned is original issue discounts on corporate bonds. Original issue discounts occur when bonds are issued below their face value. The difference between the purchase price and the face value represents the interest income, and this income is not taxed until the bond is sold or matures.
Interest from savings accounts, original issue discounts on corporate bonds, accrued market discount on bonds, and interest from money market accounts are all types of interest income that are not taxed as they are earned. This means that the individual does not have to pay taxes on the interest income until it is withdrawn or taken out of the account.
Interest from savings accounts, interest from money market accounts, and compound interest on bonds represent interest income that is typically reported and taxed annually. For example, interest income from savings accounts and money market accounts is taxable yearly. Likewise, accrued market discount on bonds may be taxable as ordinary income annually unless the taxpayer elects to defer the tax until the sale or redemption of the bond.