Updated. As the brokerage 1099 forms for the 2024 Tax Year are coming out, here is a quick reminder for those subject to state and/or local income taxes. If you earned interest from a money market fund, a significant portion of this interest may have come from “US Government Obligations” like Treasury bills and bonds, which are generally exempt from state and local income taxes. However, in order to claim this exemption, you’ll likely have to manually enter it on your tax return after digging up a few extra details.
(Note: California, Connecticut, and New York exempt dividend income only when the mutual fund has met certain minimum investments in U.S. government securities. They require that 50% of a mutual fund’s assets at each quarter-end within the tax year consist of U.S. government obligations.)
Fidelity has released US GOI percentages for 2024 on their institutional website, but it’s a little hard to read since it includes a lot of funds and share classes that are used by Fidelity-affiliated financial advisors and institutional portfolios. Their tax document page still says “Expected mid February” – Update 2/22: 2024 Percentage of Income from
U.S. Government Securities now available. The numbers from both sources are the same, although rounded off differently for some reason.
Here are the results for the most popular core Fidelity money market funds:
- Fidelity® Treasury Only Money Market Fund (FDLXX, CUSIP 31617H300) – 97.0032%.
- Fidelity® Government Money Market Fund (SPAXX, CUSIP 31617H102) – 55.0877%.
- Fidelity® Government Cash Reserves (FDRXX, CUSIP 316067107) – 57.1917%.
- Fidelity® Treasury Money Market Fund* (FZFXX, CUSIP 316341304) – 50.5640%. *FZFXX did not meet the minimum investment in U.S. Government securities required to exempt the distribution from tax in California, Connecticut, and New York.
- Fidelity® Government Money Market Fund Premium Class (FZCXX, CUSIP 31617H706) – 55.0877%. This fund has a $100,000 minimum, but also a lower expense ratio than SPAXX, which means it earns about 0.10% more yield annually as of this writing 2/20/25.
To find the portion of Fidelity dividends that may be exempt from your state income tax, multiply the amount of “ordinary dividends” reported in Box 1a of your Form 1099-DIV by the percentage listed in the PDF. For example, if you earned $1,000 in total interest from Fidelity Treasury Only Money Market Fund (FDLXX) in 2024, then $970.03 could possibly be exempt from state and local income taxes. If your marginal state income tax rate was 10% that would be a ~$97 tax savings for every $1,000 in total interest earned.
On a net after-tax basis, folks with a ~10% state income tax rate will likely find that FDLXX earns more interest than the default core holdings of SPAXX/FZFXX, even though the gross yield of SPAXX/FZFXX is higher than that of FDLXX.
To obtain these tax savings, you’ll have to manually adjust your state/local income tax return. I don’t believe that TurboTax, H&R Block, and other tax software will do this automatically for you, as they won’t have the required information on their own. (I’m also not sure if they ask about it in their interview process.) If you use an accountant, you should also double-check to make sure they use this information. Here is some information on how to enter this into TurboTax:
- When you are entering the 1099-DIV Box 1a, 1b, and 2a – click the “My form has info in other boxes (this is uncommon)” checkbox.
- Next, click on the option “A portion of these dividends is U.S. Government interest.”
- On the next screen enter the Government interest amount. This will be subtracted from your state return.
Standard disclosure: Check with your state or local tax office or with your tax advisor to determine whether your state allows you to exclude some or all of the income you earn from mutual funds that invest in U.S. government obligations.
[Image credit – Tax Foundation]
The Best Credit Card Bonus Offers – 2025
Big List of Free Stocks from Brokerage Apps
Best Interest Rates on Cash - 2025
Free Credit Scores x 3 + Free Credit Monitoring
Best No Fee 0% APR Balance Transfer Offers
Little-Known Cellular Data Plans That Can Save Big Money
How To Haggle Your Cable or Direct TV Bill
Big List of Free Consumer Data Reports (Credit, Rent, Work)
Do you have a good resource to compare these? For example, FDLXX has a 3.99% 7-day SEC yield and is 97.0032% state tax exempt while SPAXX has a 4.03% 7-day SEC yield and is 55.0877% state tax exempt. I can probably figure out the math on my own or go with my gut that FDLXX will ultimately yield more but I’d love to plug in my state and see.
You can try this spreadsheet that someone at bogleheads created:
https://www.bogleheads.org/forum/viewtopic.php?t=401821
I just rough math it mostly, for example if you have 10% state tax that is 100% exempt and 4% interest rate, you’re roughly getting 10% more interest or 0.40%. So 4.40% tax equivalent yield.
If you can only get 50% exempt w/ 10% state tax and 4% interest rate, that’s more like 5% more interest, or 0.20% more. Unless FDLXX is more than 0.20% less gross yield, it’s better to go with FDLXX. Not to mention, SPAXX has been so close to the 50% threshold in CA/CT/NY that in any given year it could be 0% state tax exempt. So I just go with FDLXX.
You can play around with this Fidelity calculator, but instead of your full state tax rate, just multiply it by the exempt percentage. So instead of a 10% tax rate, if you only have 50% exempt, just say your state tax rate is 5%.
https://digital.fidelity.com/prgw/digital/taxyieldcalc/
Thanks, this is helpful as I own SPAXX. For Vanguard money market VMFXX, the percentage is 58.97%. It appears directly on the Vanguard 1099 Consolidated.
Thank you for posting the institutional website link to the 2024 Fidelity percentages. On Friday, 2/21/2025, Fidelity finally posted the 2024 percentages from their retail website: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/taxes/TY24GSESupplementalLetter.pdf
The institutional version contains percentages listed with 6 significant digits (e.g. SPAXX is listed as 55.0877%), while the retail version contains percentages listed with 4 significant digits (e.g. SPAXX is listed as 55.09%). As you mentioned, the numbers are similar between the two versions.
Thanks for the update.
If I own SGOV, I have to do that for it as well. Is there a link for ishares as well? Also, I wonder why brokerages can’t do this and provide us a value. If I own, T-Bills, FDLXX and SGOV, Fidelity’s 1099 will include only state exempt income from TBills and I need to do the rest on my own? I think in the past years, I missed the manual portion and assumed their number is all inclusive! Thanks for the alert.
Here is the info for SGOV:
https://www.ishares.com/us/literature/tax-information/2024-ishares-us-government-source-income-information-stamped.pdf
What is FZFXX (50.5640% > 50%) not qualify for exemption in California, Connecticut, and New York.
I mean how come *FZFXX did not meet the minimum investment in U.S. Government securities required to exempt the distribution from tax in California, Connecticut, and New York?
My suspicion is that it did not need the requirement every quarter. Even though it met the requirement over the entire year, the 50% requirement has to be met at the end of every quarter.