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Is SGOV tax exempt?

Short version: not federally, but mostly yes at the state level. Here is what the official numbers say and how to claim the exemption.

By the SGOVResource.com editorial team Last reviewed Data refreshed How we calculate Editorial policy

Federal income tax

✕ Taxable

Ordinary income

State income tax

✓ Mostly exempt

95.14% gov. income in 2025

Qualified dividends?

✕ No

Interest-based income

Answer: SGOV is not exempt from federal income tax; its distributions are taxed as ordinary income. But because SGOV invests almost entirely in US Treasury bills, most of its income can usually be excluded from state income tax. For tax year 2025, iShares reported that 95.14% of SGOV’s income came from US government obligations.

Why Treasury interest is state-tax-exempt

Federal law (31 U.S.C. § 3124) generally prevents states from taxing interest on US government obligations. Most states extend that treatment to the portion of a mutual fund or ETF distribution that comes from such interest. Rules vary: some states exclude only direct Treasury interest (not federal agency debt), and California, Connecticut and New York require the fund to hold at least 50% government obligations at each quarter end.

How to claim it on your state return

  1. Find Box 1a (total ordinary dividends) for SGOV on your Form 1099-DIV.
  2. Multiply it by the government-income percentage iShares publishes for that tax year (95.14% for 2025).
  3. Enter the result as a subtraction for US government interest on your state return, following your state’s instructions.

Example: if SGOV paid you $1,000 in 2025, roughly $951.40 may be excludable from state income, leaving $48.60 subject to state tax. All $1,000 is federally taxable.

Source: iShares 2025 U.S. Government Source Income Information · Checked Oct 24, 2026

What the exemption is worth

The higher your state tax rate, the more it matters. At SGOV’s current 3.76% SEC yield, the exemption is worth roughly the yield × your state rate × 95.14% per year. Run your own numbers in the SGOV after-tax yield calculator.

Frequently asked questions

Is SGOV exempt from federal tax?
No. SGOV distributions are generally taxed as ordinary income at the federal level. They are not qualified dividends, so they do not get the lower qualified-dividend tax rates.

Is SGOV tax exempt in California?
California, Connecticut and New York only allow the exclusion for fund distributions when at least 50% of the fund’s assets are invested in US government obligations at the end of each quarter. iShares marks SGOV as meeting that requirement for 2025. Confirm in your state’s instructions or with a tax professional.

Does my broker automatically apply the exemption?
Usually not. Your Form 1099-DIV reports total ordinary dividends in Box 1a. You typically need to calculate the US government portion yourself using the issuer’s annual percentage and claim it as a subtraction on your state return.

Is SGOV tax free in an IRA?
Distributions inside an IRA or 401(k) are not taxed when paid; taxes are deferred (traditional) or avoided (Roth). That also means the state exemption doesn’t help inside a retirement account, so SGOV’s tax advantage is mainly relevant for taxable accounts.

Is SGOV exempt from local income tax?
US Treasury interest is generally exempt from state and local income taxes under federal law, but how fund distributions are treated is decided by each jurisdiction. Check your local rules.

Related on SGOVResource

Educational information only. SGOVResource.com is independent and not affiliated with BlackRock or iShares. Nothing here is a recommendation to buy or sell any security or individualized tax advice. Estimates depend on the assumptions shown and actual results will differ. Read the fund’s prospectus before investing. Disclaimer.