Are SGOV Dividends State Tax Exempt? $SGOV Taxes Explained (2026)

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I get this question a lot, usually from people who just moved a big chunk of cash into $SGOV and are now staring at a 1099. It's a good question, because the state tax treatment is one of the most underrated reasons to own a T-bill ETF instead of parking cash in a savings account.

Here's the short version. The federal government taxes $SGOV's income like any other interest. Your state, in most cases, mostly doesn't. But "mostly" is doing real work in that sentence, and the exemption doesn't happen on its own. Let me walk through exactly how it works.

Why SGOV's Income Is Mostly State Tax Free

$SGOV, the iShares 0-3 Month Treasury Bond ETF, holds U.S. Treasury bills that mature in three months or less. As of October 2026 it's a $116 billion fund charging 0.09%, with a 30-day SEC yield of 3.74%. It pays monthly, and every dollar of that payout comes from interest on those bills.

Federal law generally stops states from taxing interest on U.S. government obligations. If you bought a T-bill directly at TreasuryDirect or through your broker, that interest would be fully exempt from state and local income tax.

When you own the bills through an ETF, the rules get a little more complicated. Most states let the exemption pass through a fund to you, but only for the portion of the fund's income that actually came from U.S. government obligations. That's why the number that matters isn't "is $SGOV a Treasury fund." It's "what percentage of $SGOV's income this year came from Treasuries."

What Percentage of SGOV Is Exempt? (2024 vs 2025)

Every year, iShares publishes a document called the U.S. Government Source Income Information sheet. It lists, fund by fund, the percentage of ordinary income that came from U.S. government obligations. Here's $SGOV over the last two tax years:

Notice it isn't 100%, and it isn't the same every year. A small slice of what the fund earns comes from things other than T-bills, like the cash it holds to manage daily flows. That slice is taxable at the state level like normal interest.

This is the part most people miss: you have to use the percentage for the tax year you're filing. The 2026 figure won't be published until early 2027, when your 2026 1099 arrives. Don't plug in last year's number and assume it's close enough.

California, Connecticut and New York: The 50% Rule

A few states are stricter. California, Connecticut and New York only let a fund pass through the Treasury exemption if at least 50% of the fund's assets are in U.S. government obligations at the end of each quarter of the tax year. If a fund misses that test even once, residents of those states can't exclude any of its government income.

For $SGOV, this is basically a non-issue. It's a T-bill fund, and iShares flagged it as meeting the 50% quarter-end test for both 2024 and 2025. Where the rule bites is broader bond funds and mixed money market funds, where Treasuries might be 30% or 40% of the portfolio. Someone in New York can own a fund with plenty of Treasury income and still get zero state exemption on it.

Federal Tax: Are SGOV Dividends Qualified?

No. This trips people up because the money shows up as "dividends" on your brokerage statement. But $SGOV's payouts are interest income passed through a fund, so they're reported as ordinary dividends (box 1a on Form 1099-DIV) and taxed at your regular federal income tax rate. They don't get the lower qualified dividend rate that a fund like $SCHD mostly does.

So the full picture looks like this:

• Federal: 100% taxable as ordinary income.
• State (most states): about 95% exempt for 2025, the rest taxable.
• Selling shares: any gain or loss when you sell $SGOV is a normal capital gain or loss. The state exemption only covers the income distributions, not gains on the shares. With $SGOV's price barely moving, this is usually tiny.

If you hold $SGOV in an IRA or 401(k), none of this matters day to day. The income isn't taxed while it stays in the account, and the exemption is lost when you withdraw, because withdrawals are taxed as regular income. That's why I think $SGOV is one of the few income funds that can make more sense in a taxable account than inside an IRA.

What the Exemption Is Actually Worth

Let's make this real. Say you have $100,000 in $SGOV yielding 3.74%. That's about $3,740 a year in income, or roughly $312 a month.

Read that last column carefully. If you're in a 9.3% state bracket, a high yield savings account or CD would need to pay about 4.10% just to tie $SGOV after state tax. That's the comparison I actually make when I'm deciding where cash sits. Headline yields are the wrong scoreboard. What lands in your pocket is the right one.

Want to see what that monthly income looks like over time with reinvesting? Plug $SGOV into DividendProjection.com and run the numbers.

How to Claim the SGOV State Tax Exemption

Here's the annoying part: your broker almost certainly won't do this for you. Your 1099-DIV will show all of your $SGOV payouts as ordinary dividends, with no state adjustment. If you just import it into tax software and click next, you'll probably pay state tax on the whole thing.

1. Find your total $SGOV ordinary dividends for the year on your 1099-DIV (box 1a). Some brokers break it out by fund in the supplemental pages.
2. Look up the percentage in iShares' U.S. Government Source Income document for that tax year. For 2025 it's 95.14%.
3. Multiply. $3,740 of dividends × 95.14% = about $3,558 of U.S. government interest.
4. Subtract it on your state return. Most states have a line for interest on U.S. government obligations. Tax software usually asks "what percentage of this dividend came from U.S. government obligations?" when you enter the 1099-DIV. That's where the number goes.
5. Keep the iShares document with your records in case your state asks.

Five minutes of work. On a six-figure cash position, it can be worth a few hundred dollars a year, every year.

SGOV vs Other Treasury ETFs on State Taxes

$SGOV isn't the only fund with a big state tax break. iShares publishes the same figure for all of its Treasury funds, and some are even higher. Here's how a few compare for 2025:

Funds from other issuers, like $BIL, $USFR and $TBIL, publish their own versions of this document each year. Look them up before assuming they match. And funds that add an options strategy on top of T-bills, like $CSHI, earn part of their income from something other than Treasuries, so that part won't qualify.

For the full side-by-side on yield, assets and total return, see my $SGOV dividend 2026 breakdown, which compares $SGOV against $BIL, $USFR, $TBIL, $CSHI and $WEEK. If you want T-bill income every week instead of every month, WeeklyETFs.com tracks every weekly payer.

4 Mistakes I See People Make

• Assuming the broker handled it. They usually don't. Check your state return.
• Using 100% instead of the real percentage. It was 95.14% for 2025, not 100%. Overclaiming isn't a great idea.
• Holding it in an IRA for the "tax benefit." The state exemption does nothing inside a tax-deferred account.
• Comparing pre-tax yields. A savings account at 4.00% can lose to $SGOV at 3.74% once your state takes its cut. Run the after-tax math.

My Take

I treat $SGOV as a cash tool, not an income engine. It's where money sits while I wait for a better opportunity, or where emergency cash lives. It's not going to build serious monthly income on its own, and it's not supposed to.

But if you're going to hold cash anyway, and you pay state income tax, the exemption makes $SGOV one of the most efficient places to do it. The yield looks plain. The after-tax yield is what makes it interesting.

If you're ready to move past cash and build real monthly income, start with the best ETFs for monthly income in 2026 or browse every monthly dividend ETF we track. For the live $SGOV yield and income calculator, see the $SGOV scorecard. And if you're comparing $SGOV against higher-yield funds, TopDividendETFsPRO shows live yields and price decay side by side.

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