Tax season
How to claim the state tax exemption on Treasury money funds
Interest from U.S. Treasuries isn’t taxed by your state. When it reaches you through a money market fund, it’s reported as ordinary dividends, so the exemption only counts if you claim it. On $50,000 in VMFXX for a year, that’s about $65 back at 5% state tax.
Four steps
- Find the fund’s dividends on your Form 1099-DIV (ordinary dividends, box 1a), fund by fund.
- Get the fund’s percentage of income from U.S. government obligations from the fund company’s tax notice, published each January. The 2025 figures are below.
- Multiply the dividends by that percentage. That’s your state-exempt U.S. government interest.
- Enter it on your state return as U.S. government interest (a subtraction from income). Most tax software asks for the percentage or the amount right after you enter the 1099-DIV. Keep the fund’s notice with your records.
What it’s worth: $50,000 for a year, today’s yields
| Fund | Dividends | Exempt share (2025) | State-exempt | Saved at 5% |
|---|---|---|---|---|
| VMFXXVanguard Federal Money Market (settlement fund) | $1,940 | 66.61% | $1,292 | $65 |
| FDLXXFidelity Treasury Only Money Market Fund | $1,805 | 98.67% | $1,781 | $89 |
| SPAXXFidelity Government Money Market | $1,780 | 50.90% | $906 | $45 |
| SNSXXSchwab U.S. Treasury Money Fund | $1,810 | 99.99% | $1,810 | $90 |
Every fund’s 2025 percentage
| Fund | From U.S. government | CA, CT, NY 50% test | Notice |
|---|---|---|---|
| VUSXXVanguard Treasury Money Market Fund | 100.00% | Meets it | Read it |
| SNSXXSchwab U.S. Treasury Money Fund | 99.99% | Meets it | Read it |
| FSIXXFidelity Treasury Only Portfolio | 99.59% | Meets it | Read it |
| FDLXXFidelity Treasury Only Money Market Fund | 98.67% | Meets it | Read it |
| VMRXXVanguard Cash Reserves Federal Money Market Fund (Admiral) | 69.58% | Meets it | Read it |
| VMFXXVanguard Federal Money Market (settlement fund) | 66.61% | Meets it | Read it |
| FZFXXFidelity Treasury Money Market Fund | 61.52% | Doesn’t | Read it |
| FDRXXFidelity Government Cash Reserves | 52.17% | Doesn’t | Read it |
| SPAXXFidelity Government Money Market | 50.90% | Meets it | Read it |
| SNVXXSchwab Government Money Fund | 36.20% | Doesn’t | Read it |
| SNOXXSchwab Treasury Obligations Money Fund | 31.30% | Doesn’t | Read it |
| SPRXXFidelity Money Market Fund | 14.56% | Doesn’t | Read it |
California, Connecticut and New York
These three states allow the exemption on a fund’s dividends only if at least half of the fund’s assets were U.S. government obligations at the end of every quarter. Fund companies say which funds met it. If a fund didn’t, none of its dividends are exempt there, even when its percentage is above 50%: Fidelity’s FZFXX (61.52%) and FDRXX (52.17%) didn’t meet it for 2025.
T-bills and T-bill ETFs
Treasury bills you hold directly are reported in box 3 of Form 1099-INT, and tax software normally keeps them off your state return; check that it did. Exchange-traded funds that hold T-bills work like money funds: the issuer publishes a percentage each year, and you claim it the same way.
Questions
Are Treasury money market fund dividends exempt from state tax?
Partly or fully, depending on the fund. The share of a fund's dividends that came from U.S. government obligations is exempt from state and local income tax, but it's reported to you as ordinary dividends, so you have to claim it on your state return. For 2025: VMFXX 66.61%, FDLXX 98.67%, SPAXX 50.90%, SNSXX 99.99%.
How do I claim the state exemption for a money market fund?
Find the fund’s ordinary dividends on your 1099-DIV, multiply by the percentage of income from U.S. government obligations in the fund company’s tax notice, and enter that amount as U.S. government interest on your state return. Most tax software asks for the percentage or the amount after you enter the 1099-DIV.
Do I need to do anything for Treasury bills?
Usually not. Interest from T-bills you hold directly is reported in box 3 of Form 1099-INT as interest on U.S. Treasury obligations, and tax software normally leaves it off your state return. Check that it did.
What is the California, Connecticut and New York 50% rule?
These states allow the exemption on a fund’s dividends only if at least half of the fund’s assets were U.S. government obligations at the end of each quarter. Fund companies say in their notice which funds met it; if a fund didn’t, none of its dividends are exempt in these states.
General information, not tax advice; for your own return, check with a tax professional. Money market funds ranked after tax · Your state’s rate · What the exemption is worth by state.