How do I handle Money Market Fund that had U.S Government obligation in New York State Return?

[Max Hope]

I have a Vanguard Federal money market fund (VMFXX) that had a U.S Government obligation of 49.37% for 2023.  The fund’s transaction type was Nonqualified dividend.  How is this taxed in New York State?  And how do I enter percentage of a U.S Government obligation in turbo tax for New York State return?

[LindaS5247]

Nonqualified dividends are taxed as ordinary income in New York State.  This should have been reported to you on a Form 1009-DIV. 

Nonqualified dividends are taxed as regular income and are subject to the same rate as the person's federal income tax rate, ranging from 10% to 37%.

Nonqualified dividend income is listed in box 1a of the 1099-DIV IRS form, while qualified dividends go in box 1b.

When entering your Form 1099-DIV you should see this prompt:

And then this prompt.  This is where you enter your Government Percentage Amount:

Note:  Keep a copy of your Brokerage Statement that shows the  % of the Government for your tax records.

You will see your dividends on your New York State Tax Return by clicking into Forms Mode (top right of your screen) and on the left panel, select your New York State Tax Return to view it.

This is how your New York State Tax Return will look:

For New York State you will not be able to claim those unless the your fund holds at least 50% of it's holdings in US Govt Securities. Some states only allow exemptions on dividends for those funds holding a minimum percentage, usually 50%, of government securities at the end of each quarter.

Click here for additional information on Form 1099-DIV.

Click here for additional information on taxes on dividends.
 

[Max Hope]

The prompt asks for the "amount" not the percentage.  Please confirm that I should enter the dollar amount. Not the percenatge.  I believe I should use the 49.37% percentage to calculate the dollar amount that is entered.

[Pip_12_mn]

I think what LindaS is saying is you cannot exclude ANY of the dividends from NY state taxable income since NY is one of three states that requires the fund hold at least 50% US Debt Obligations at the end of each quarter, which the Federal Money Market fund does not do. You would need to switch to the Treasury Money Market Fund which meets the threshold to avoid at least some of the tax in NY.

I also agree with you,enter the AMOUNT and not the percent. You would calculate the amount based on the percentage, but in this case I dont think it matters since NY would tax it all.

[artsgo]

>For New York State you will not be able to claim those unless the your fund holds at least 50% of it's holdings in US Govt Securities. Some states only allow exemptions on dividends for those funds holding a minimum percentage, usually 50%, of government securities at the end of each quarter.

Is the percentage of US Govt Holdings in the fund the same as the percentage published  under the description   "Percentage of ordinary dividends from U.S. government obligations"

Is the percentage  that US Govt Holdings  comprise  of the entire fund at the end of each quarter a number that's even published by mutual funds?
thanks

[baldietax]

Check the official supplemental tax info letter from the investment company which contains these %s that's the official source for filing; I don't think you get quarterly breakdown but they should tell you whether it meets the threshold.  e.g. Vanguard has a footnote "* This fund meets the threshold requirements for California, Connecticut, and New York, which require that 50% of the fund’s assets at each quarter-end within the tax year consist of U.S. government obligations."

If you're a high state tax you would ideally want to be in a MM fund with highest possible US Gov obligations that invest directly in Treasuries rather than repo market etc, E.g. Vanguard's VUSXX (100%) instead of VMFXX (60%); Fidelity's FDLXX (97%) instead of SPAXX (55%).  (2024 %s).  Firms like Vanguard or Fidelity use lower US Gov % funds as default for cash management so you have to explicitly buy into these other funds.

https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/USGO_012025.pdf

[Hal_Al]

Note that you must enter the amount of US government interest, not the percentage. 

[artsgo]

thank you all for the replies.  Relying on the footnote (eg the one for Vanguard) seems the only way to know which funds meet the NY, CT, and CA requirements of (at least) 50% US holdings throughout the year.  the percentage for each fund is usable only if a fund first meets the 50% requirement.

It does not help planning when the same fund meets the 50% req in some years but not in others. (eg VMRXX)

[baldietax]

yes prior year is only a guide, if this is an issue it's best to go with a fund that consistently invests directly in Treasuries and not the repo market, and has the higher % even if it varies between 80-100% it will be above the limit e.g. VUSXX.  There's sometimes a difference in trade cutoff/settlement for the funds which may affect liquidity, otherwise they're usually similar yields etc.

[Pip_12_mn]

I wonder if  (VUSXX) ever dropped below 50% US Govt Obligations? I never paid much attention since my state does not have that threshold requirement.

[baldietax]

I don't know full history but VUSXX for 2022 - 100%, 2023 - 80%, 2024 - 100%.  For both VMFXX and VMRXX seems they didn't qualify in 2022/3 but did in 2024.

https://personal1.vanguard.com/pdf/USGOIN_2023.pdf

https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf

https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/USGO_012025.pdf