Is Treasury Only MM Interest Exempt From State Taxes?

[fred495]

Interest on US Treasury Obligations is exempt from state and local income taxes.

Just curious if this also applies to the Treasury Obligations held within Treasury Only money market funds? 

Thanks,

Fred

[yogibearbull]

Direct obligations of the US Government are excluded from state/local taxes.

Indirect obligations are NOT exempt. So, excludes are Treasury repos, GSEs (GNMA, Fannie Mae, Freddie Mac, etc).

US Savings Bonds are also NOT exempt.

The difference between Treasury MMF and Treasury-only MMF is that the former rely heavily on Treasury repos - so a bit higher rate but less state tax exemption (that may be fine for low/no tax states).

www.ncdor.gov/interest-income-us-obligations
tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-101.pdf
www.irs.gov/taxtopics/tc403

[fred495]

Thank you very much for the information. Much appreciated, yogi.

However, I noticed that the Illinois tax publication you referenced states that:

"The following types of income are exempt from Illinois Income Tax:

Interest on U.S. Treasury bonds, notes, bills, certificates, and savings bonds."

Seems like savings bond interest is tax exempt in Illinois. Maybe the exemption for savings bonds varies by state?

Fred

[yogibearbull]

My mistake. I will strikeout that part. Thanks.
www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/

[anitya]

Treasury Only is in the name of some MM funds.  Notwithstanding the name, I would check the fund mandate and how much of prior year distribution was exempt from State income to get an mental estimate for current year exemption. That is how far I would go. The real data shows up only when the fund issues tax information after year end. E.g., FDLXX - Fidelity® Treasury Only Money Market Fund 93.63% (2022 Percentage of Eligible Income from U.S. Government Securities). I own this and pay my 2023 estimate taxes making a guess of how much I could potentially exclude for my State income.

All information shared in this forum is for further research and not to execute trades or to make final investment decisions.

[catdog]

My state New Hampshire is phasing out I and D state tax starting this year.  It should be gone by 2025 assuming our tax hungry politicians don't pull any last minute shenanigans.

Catdog

[FD1000]

yogibearbull ,
So if I look at the 4 MM below, which are exempt from state/local taxes?
* Schwab Government Money Fund – Ultra Shares (SGUXX)
* Schwab Treasury Obligations Money Fund – Ultra Shares (SCOXX)
* Schwab U.S. Treasury Money Fund – Ultra Shares (SUTXX)

* Schwab Value Advantage Money Fund® – Ultra Shares (SNAXX)

[yogibearbull]

Oct 4, 2023 21:48:22 GMT FD1000 said:

yogibearbull ,
So if I look at the 4 MM below, which are exempt from state/local taxes?
* Schwab Government Money Fund – Ultra Shares (SGUXX)
* Schwab Treasury Obligations Money Fund – Ultra Shares (SCOXX)
* Schwab U.S. Treasury Money Fund – Ultra Shares (SUTXX)

* Schwab Value Advantage Money Fund® – Ultra Shares (SNAXX)

From Schwab Supplementary Tax Information for 2022, here is how much was exempt from state/local taxes (fund classes don't matter):

Schwab Government Money Fund 23.83%

Schwab Retirement Government Money Fund 23.33%

Schwab Treasury Obligations Money Fund 18.80%

Schwab U.S. Treasury Money Fund 100.00%

www.schwabassetmanagement.com/resource/2022-supplementary-tax-information

[FD1000]

Thank you, sir.