Entering the state-tax-exempt part of SGOV, SPAXX and VUSXX dividends in tax software: the percentages, the 50% rule, and what 5 programs say
Dividends from Treasury money market funds and T-bill ETFs are fully taxable on your federal return. Most states do not tax the part that comes from U.S. Treasury interest, but your tax program will not know that part unless you tell it. In short:
- Find the fund's U.S. government percentage for the year. For 2025, SGOV's was 95.14% and SPAXX's 50.90% (table).
- Multiply it by the dividends in box 1a of the fund's 1099-DIV. With $1,000 of SGOV dividends, $951.40 is U.S. government interest.
- Check your state's rule. California, Connecticut and New York exempt it only if the fund held at least 50% in U.S. government obligations; SPAXX did not for 2025, so its $509.00 is taxed in those three states (details).
- Enter it where your program asks, not in box 12. TaxAct and FreeTaxUSA explain the step on their own help pages; for TurboTax we found only community answers, and for H&R Block and Cash App Taxes nothing (table).
Step 1: the fund's U.S. government percentage
Fund companies publish this each year in a tax letter or the supplemental information that comes with your 1099. These are the 2025 figures we collected from each sponsor for state tax exempt money market funds and ETFs. Sponsors usually publish the next year's figures in January or February.
| Fund | Name | U.S. government share, 2025 | Met the 50% test (CA, CT, NY) | On $1,000 of dividends |
|---|---|---|---|---|
| VUSXX | Vanguard Treasury Money Market Fund | 100.00% | Yes | $1,000.00 |
| SNSXX | Schwab U.S. Treasury Money Fund | 99.99% | Yes | $999.90 |
| TFLO | iShares Treasury Floating Rate Bond ETF | 99.21% | Yes | $992.10 |
| FDLXX | Fidelity Treasury Only Money Market Fund | 98.67% | Yes | $986.70 |
| BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | 97.26% | Yes | $972.60 |
| SGOV | iShares 0-3 Month Treasury Bond ETF | 95.14% | Yes | $951.40 |
| SHV | iShares 0-1 Year Treasury Bond ETF | 89.80% | Yes | $898.00 |
| VMFXX | Vanguard Federal Money Market Fund | 66.61% | Yes | $666.10 |
| FZFXX | Fidelity Treasury Money Market Fund | 61.52% | No | $615.20 |
| SPAXX | Fidelity Government Money Market Fund | 50.90% | No | $509.00 |
| SNVXX | Schwab Government Money Fund | 36.20% | No (not marked by Schwab) | $362.00 |
Step 2: turn it into a dollar amount
Multiply the fund's ordinary dividends from box 1a of its 1099-DIV by the percentage. The IRS tells payers to put money market fund dividends in box 1a: “Enter dividends, including dividends from money market funds, net short-term capital gains from mutual funds, and other distributions on stock.” If your broker sends one 1099-DIV for several funds, do the multiplication fund by fund and add the results. FreeTaxUSA and TaxAct describe entering a dollar amount.
Step 3: your state's rule
Most states with an income tax let you subtract the U.S. government part of fund dividends, but the details differ. FreeTaxUSA's help page: “Each state defines government bonds differently, so you may need to check if any of these dividends are taxable in your state.” California, Connecticut and New York add a fund-level test: the exemption applies only if the fund held at least 50% of its assets in U.S. government obligations at the end of each quarter. Fidelity marked SPAXX and FZFXX as missing it for 2025, and Schwab did not mark SNVXX, so those dividends are fully taxable in those three states. States with no income tax, or no tax on dividends, need no adjustment. Our SGOV and SPAXX pages work it out state by state.
Not box 12
Box 12 of the 1099-DIV is a different thing. The IRS: “Enter exempt-interest dividends from a mutual fund or other RIC.” Those are dividends exempt from federal tax, mostly from municipal bond funds. A 2023 TurboTax Community answer from an account labeled Intuit says the same: “No, your box 12 amount is dividends from investments that are exempt from federal tax.” Treasury fund dividends are in box 1a and taxed federally. Community answers do not always agree; a 2025 reply in another thread said U.S. obligations go in box 12. The IRS's instructions are the reference.
Step 4: where each program asks
| Program | What its own pages say | Pages read |
|---|---|---|
| Cash App Taxes | We found no help article on this in Cash App Taxes' help center (searched for U.S. government interest and 1099-DIV). | Cash App Taxes help center |
| FreeTaxUSA | Help answer: “If your dividends include interest from U.S. Treasury Bills, notes, or bonds issued by any agency of the U.S. Government, that income will be exempt from state and local taxes.” “Each state defines government bonds differently, so you may need to check if any of these dividends are taxable in your state.” “Only enter amounts here that your state does NOT tax.” You enter a dollar amount. | FreeTaxUSA, How can my dividend income include U.S. Government interest income? |
| H&R Block | We found no help article on this on H&R Block's site (searched for U.S. government obligations and mutual fund dividends). | H&R Block, Tax Implications of a Dividend |
| TaxAct | Support article: “To enter the amount of state exempt dividend income (i.e. due to your mutual fund investing in U.S. government obligations), follow the steps below.” Inside the 1099-DIV, “continue with the interview process until you reach the screen titled Dividend Income – State Tax-Exempt Investments”, click Yes, and “If your state allows this deduction, it will flow to the appropriate section of the state return.” | TaxAct, Form 1099-DIV - Entering Tax Exempt in Program |
| TurboTax | No help article found; only community answers. A 2023 answer from an account labeled Intuit: “This question is asking how much of your taxable dividend income is from US government interest.” The question in the 1099-DIV follow-up reads “A portion of these dividends is U.S.Government interest” (from the thread's title). | TurboTax Community, Is Box 12 included in "A portion of these dividends is U.S. Government interest?" (2023); TurboTax Community, how do I tell TurboTax that I received US government interest (2025) |
Quick answers
Are SGOV or SPAXX dividends tax free?
Not federally. They are taxed as ordinary dividends on your federal return. Only the state return can subtract the U.S. government part, and only in states that allow it.
Where is the percentage on my 1099?
Usually not on the 1099-DIV itself but in the supplemental tax information or the fund company's tax letter. FreeTaxUSA's help page: “You can often find this information on the 1099 you received, or you may need to check with your broker or mutual fund company.”
Does this work for T-bill ETFs as well as money market funds?
Yes, for ETFs that are regulated investment companies paying dividends, such as SGOV, BIL, SHV and TFLO. Treasury bills you own directly are different: their interest is on a 1099-INT, not a 1099-DIV; see how to buy T-bills.
I live in California and hold SPAXX. Is any of it exempt?
Not for 2025: Fidelity marked SPAXX as missing the 50% test that California applies. Fidelity's Treasury Only fund (FDLXX) met it; see FDLXX vs SPAXX.
How we checked
- The box definitions come from the IRS's Instructions for Form 1099-DIV, read October 31, 2026.
- For each program we read its own help pages, or its community where no help page exists, and searched its site. H&R Block's site refuses many automated requests; our search of its tax center found no article on this.
- The fund percentages are the 2025 figures on our 12-fund page, which cites each sponsor.
What this page does not cover
- Which tax program to use, and their prices; for what the free versions take, see free tax filing with dividends.
- Municipal bond funds (box 12), and state rules for funds outside the table.
Rechecks and changes
We will add the 2026 percentages when the fund companies publish them in early 2027, and read the programs' help pages again when their 2026 versions open.
- . First published.
Sources: IRS, Instructions for Form 1099-DIV; FreeTaxUSA, How can my dividend income include U.S. Government interest income?; TaxAct, Form 1099-DIV - Entering Tax Exempt in Program; TurboTax Community, Is Box 12 included in "A portion of these dividends is U.S. Government interest?" (2023); TurboTax Community, how do I tell TurboTax that I received US government interest (2025); fund sponsors via our 12-fund page. This page contains no affiliate links. It is not tax advice.