Fidelity's Government Money Market Fund Missed California's 50% Test for 2025. On $50K That Costs $172 a Year
Each year Fidelity publishes a letter listing how much of each fund’s income came from U.S. government securities, so shareholders can exclude that share on their state tax return. We pulled the one for tax year 2025. Its Government Money Market Fund, the fund many Fidelity accounts use to hold cash (ticker SPAXX for the retail class), reported 50.90%. Next to its name is an asterisk.
The footnote reads: “This fund did not meet the minimum investment in U.S. government securities required to exempt the distribution from tax in California, Connecticut, and New York.” For residents of those three states, none of that 50.90% is exempt. The whole dividend is state income.
Which Fidelity cash funds were marked
| Fund (all classes) | Income from U.S. government securities, 2025 | Exempt in CA, CT, NY? |
|---|---|---|
| Money Market Fund | 14.56% | No |
| Government Money Market Fund | 50.90% | No |
| Government Cash Reserves | 52.17% | No |
| Treasury Money Market Fund | 61.52% | No |
| Treasury Only Money Market Fund | 98.67% | Yes |
| Money Market Treasury Only Portfolio | 99.59% | Yes |
The Treasury Money Market Fund is the surprise: 61.52% of its income came from government securities and it still failed. Fidelity describes the requirement as a minimum investment, so what counts is what the fund held, not how its income split. Government funds also hold repurchase agreements backed by Treasuries, and those generally don’t count as U.S. obligations for state tax purposes. Only the Treasury Only funds, which skip repos, cleared it.
What it costs on $50,000
We ran $50,000 through the Cash Yield After Tax calculator for a California resident at a 24% federal rate and California’s 9.3% bracket. Yields are from mid-October 2026: 3.50% for the Government fund and 3.53% for Treasury Only (7-day yields on Yieldfinder’s tracker, October 15), 4.20% for the 13-week bill (Treasury’s daily bill rates, October 14) and 4.20% for a savings account (Bankrate’s top tier, October 15).
| Where the $50,000 sits | Yield | California 9.3% | No state income tax |
|---|---|---|---|
| Government Money Market Fund | 3.50% | $1,167 | $1,330 |
| Treasury Only Money Market Fund | 3.53% | $1,339 | $1,341 |
| Savings account | 4.20% | $1,401 | $1,596 |
| 13-week Treasury bills, bought directly | 4.20% | $1,596 | $1,596 |
In California, moving from the Government fund to Treasury Only adds $172 a year at almost the same yield, because 98.67% of its income escapes the 9.3% state tax. Buying the bills directly adds $429, because you get both the state exemption and the higher bill yield. A Californian who assumed the Government fund’s 50.90% was exempt would expect about $1,250 and actually keep $1,167.
In a state with no income tax the fund choice is worth $11. What matters there is the yield: the money market funds trail a 4.20% bill or savings account by about $260 a year.
To run your own numbers in the calculator, enter a fund that fails your state’s test in the savings slot, since its income is fully taxable for you, and a Treasury Only fund in the Treasury bill slot.
Where this doesn’t apply
- Other states. The minimum, at least half the fund’s assets in U.S. government securities at each quarter-end, is a California, Connecticut and New York rule. Other states set their own: where the government share of any fund’s dividends can be excluded, the Government fund’s 50.90% would count. Your state return’s instructions say which rule applies.
- Other years. These are 2025 percentages, published in early 2026. A fund’s mix changes, and the 2026 figures won’t be out until early 2027.
- Other fund families. This is Fidelity’s letter. Vanguard, Schwab and others publish their own, and a fund with “government” or “Treasury” in its name can land on either side of the line.
- Retirement accounts. Inside an IRA or 401(k) there is no state tax on the dividends each year, so none of this applies.
- Daily yields. Seven-day yields move every day and the gap between a fund and a bill changes with them. The table is a snapshot from one week in October 2026.
What to actually do
- Check whether your state has a minimum-investment rule (California, Connecticut, New York) or allows a pass-through at all.
- Look up your cash fund in its family’s U.S. government income letter for last year and see whether it carries the footnote.
- If you live in one of those three states and your fund failed, compare a Treasury Only fund, which held up in 2025 at nearly the same yield.
- Compare the after-tax result with buying bills directly and with a savings account in the calculator. Your emergency fund is the money you’re most likely to keep in cash; how big it should be decides how much this matters.
- If your modified AGI is over $200,000 single or $250,000 joint, add the 3.8% surtax: it applies to all of this income, as the NIIT post explains.