A portion of money market fund dividends derived from U.S. government obligations may be exempt from state and local income taxes. The link included below provides information regarding the percentage of ordinary dividends from U.S. government obligations for funds from Fidelity in tax year 2024. Since several DA readers have money market funds with Fidelity, this information may be useful in the preparation of their tax returns for tax year 2024. Similar information from Vanguard and Schwab was made available earlier this year.
SPAXX (Fidelity Government Money Market Fund) had 55.09% of its ordinary dividends from U.S. government obligations in tax year 2024. FDLXX (Fidelity Treasury Only Money Market Fund) had 97.00%, FZFXX* (Fidelity Treasury Money Market Fund) had 50.56%, FZDXX* (Fidelity Money Market Fund Premium Class) had 15.52%, and SPRXX* (Fidelity Money Market Fund) had 15.52%. Note that FZFXX had a significant amount of repurchase agreements in its portfolio in 2024. Also note that FZFXX, FZDXX, and SPRXX are each marked with an asterisk (*) which means they did not meet the minimum investment in U.S. Government securities required to exempt the dividends from tax in California, Connecticut, and New York.
California, Connecticut, and New York have threshold requirements which require that 50% of the fund’s assets at each quarter-end within the tax year consist of U.S. government obligations. If the fund does not meet the 50% threshold requirement, then none of the dividends will be state tax exempt. Whether a specific fund has met the threshold requirement for tax year 2024 is indicated in the information available from the link provided below.
Money market funds don’t have FDIC coverage, but they do offer a useful alternative to savings accounts for liquidity. Although money market funds are considered extremely low-risk investments, some may include slightly more risk than others. Money market funds which invest predominantly in Treasuries are generally considered to be the safest.
