Did you own Money Market Funds, like Vanguard's $VMFXX or...
The Money Cruncher, CPA@money_cruncher
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Jan 30, 2025
~2 min read
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Did you own Money Market Funds, like Vanguard's $VMFXX or Fidelity's $SPAXX, or Treasury ETFs like $SGOV in 2024?
If so, you must report them on your taxes correctly to avoid state and local tax. Many people miss this...
Here's how to do it correctly:
If so, you must report them on your taxes correctly to avoid state and local tax. Many people miss this...
Here's how to do it correctly:
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Most of these funds hold U.S. Treasury Bills.
Treasuries are exempt from state and local taxes.
But, you have to report them correctly in order to get this benefit and avoid paying taxes.
Treasuries are exempt from state and local taxes.
But, you have to report them correctly in order to get this benefit and avoid paying taxes.
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The 1099-DIV doesn’t show how much of the dividends from these funds were allocated to Treasuries.
The software doesn’t know either.
This means you have to figure out how to report it (and many people miss it).
The software doesn’t know either.
This means you have to figure out how to report it (and many people miss it).
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Now, the 1099-DIV will have a breakdown of every single stock/ETF you have, but you have to find out the percentage of a fund that holds Treasuries.
Let me show you how that works:
Let me show you how that works:
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Say, in 2024, you received $300 of dividends from Vanguard's Treasury Money Market Fund ($VUSXX).
Now, the entire $300 will be taxable at the federal level, but how do we exempt this from state taxes?
Now, the entire $300 will be taxable at the federal level, but how do we exempt this from state taxes?
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First, we need to find out the percentage of ordinary dividends that came from U.S. government obligations.
All fund managers (i.e. iShares/Fidelity/Vanguard) will post a "U.S. government source income information" on their tax page.
All fund managers (i.e. iShares/Fidelity/Vanguard) will post a "U.S. government source income information" on their tax page.
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Now, since we held a Vanguard Treasury MMF, we will need to find one for Vanguard.
They already posted it:
They already posted it:
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If we scroll down, we will see that the Treasury Money Market Fund we received dividends from has a 100% of dividends coming from Treasuries (exempt from state tax):
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Some funds might be 80-90%, so you will just need to do a quick calculation (i.e. 20-10% will be taxable, 80-90% wouldn't)
If you had multiple ETFs in your brokerage, you can just scroll to the details section to find out how much came from the MMFs.
If you had multiple ETFs in your brokerage, you can just scroll to the details section to find out how much came from the MMFs.
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It’s important to note that some states say, “if less than 50% of the fund is from the U.S. government (like Treasury Bills), you can treat it as 0%.”
For example, California, Connecticut, and New York are some of these states.
So, you would just have to pay the state tax.
For example, California, Connecticut, and New York are some of these states.
So, you would just have to pay the state tax.
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So, how do we enter it in the tax software?
Most of them will ask you a question whenever you enter a 1099-DIV about whether a portion of the dividends came from U.S. gov interest.
You will have to check it and enter the amount. In our case, it will be $300 ($300 * 100%).
Most of them will ask you a question whenever you enter a 1099-DIV about whether a portion of the dividends came from U.S. gov interest.
You will have to check it and enter the amount. In our case, it will be $300 ($300 * 100%).
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If someone prepares your taxes and you have some of these money market funds, double check your tax return!
This will save you $$$.
If you live in a no tax state, this doesn't matter to you, but good to know in case you move.
This will save you $$$.
If you live in a no tax state, this doesn't matter to you, but good to know in case you move.
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2. retweet the first tweet
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