Yes, but 95.14%, not 100%. For tax year 2025, iShares reported that 95.14% of SGOV's income came from US government obligations. California lets you exclude that portion from state tax, and taxes the remaining 4.86%. The exclusion is available at all because SGOV held at least 50% of its assets in federal obligations at the end of every quarter, which is California's test. It is not automatic: your 1099-DIV will not do the subtraction for you.
If you have read anything about SGOV and state tax, you have read that Treasury interest is exempt under 31 U.S.C. 3124. That is true, and it is also where most explanations stop. For a California resident two further questions decide what you actually keep, and neither has a yes/no answer.
The number is 95.14%, and it is published once a year
SGOV is designed to hold only short-dated Treasury bills, so you might expect 100% of its income to qualify. It does not, for an ordinary reason: a fund's income in any given year can include small amounts that are not Treasury interest, such as income earned on cash balances between settlements.
So every year BlackRock publishes the actual figure. For tax year 2025, in its US Government Source Income Information document, SGOV is listed at 95.14%.
That is the number you multiply by. If your 1099-DIV box 1a shows $4,000 of SGOV dividends, $3,805.60 is excludable from California income and $194.40 is not.
| SGOV dividends (box 1a) | Excludable at 95.14% | Still taxable by CA | CA tax at 9.3% |
|---|---|---|---|
| $1,000 | $951.40 | $48.60 | ~$5 |
| $5,000 | $4,757.00 | $243.00 | ~$23 |
| $10,000 | $9,514.00 | $486.00 | ~$45 |
| $25,000 | $23,785.00 | $1,215.00 | ~$113 |
The residual tax is small. The reason to get it right is not the $45, it is that the exclusion is large and people miss it entirely: on $10,000 of dividends a California resident in the 9.3% bracket keeps roughly $885 they would otherwise hand over, and nothing on the 1099 prompts them to claim it.
California's 50% test, and why SGOV passes it
This is the part almost nobody writes about, and it is the reason the exclusion exists at all.
California does not simply let you exclude any fund income that happens to come from Treasuries. The Franchise Tax Board's Schedule CA (540) instructions set a condition on the fund itself: a mutual fund must hold at least 50% of its assets in qualifying US obligations for shareholders to claim the exclusion on the pass-through income.
A fund that holds 40% Treasuries and 60% corporate debt gives its California shareholders nothing, even on the Treasury part. It is all or nothing at the fund level, and then proportional above that line.
SGOV clears it comfortably, and BlackRock says so explicitly. In the same document, SGOV carries a double asterisk, and the legend at the end of the file defines it:
“**At least 50% of the assets of the fund were invested in Federal Obligations at the end of each quarter of the fiscal year.”
Note what the test actually measures: assets at each quarter-end, not income across the year. Those are different numbers, which is why a fund can report 95.14% of income from government sources and separately need to confirm it held 50% of assets in them. SGOV satisfies both.
California is not alone in applying a threshold. New York and Connecticut use the same 50% structure. New Jersey does not, and sets its bar at 80% with a certification form on top. It is one of the few places where the identity of the fund, rather than what you personally did, decides your state tax.
How to actually claim it
The exclusion is not applied for you, and this is where most of the money is lost.
- Find the figure for the right tax year. It changes annually. For 2025 it is 95.14%; do not carry a prior year's number forward. Every published year is here.
- Multiply box 1a of your 1099-DIV by it. Your broker reports the full dividend in box 1a and generally does not break out the government-source portion.
- Enter the result as a subtraction on Schedule CA (540), in the interest and dividends section, as US government interest.
- Keep the iShares document with your records. It is the support for the number if anyone asks.
Most tax software asks a question along the lines of “how much of this was from US government obligations?” and leaves the box blank by default. A blank box means you pay California tax on the whole distribution.
What the exclusion does not cover
- Federal tax. All of it is federally taxable. The exclusion is a state matter only.
- Capital gains. If you sell SGOV shares for more than you paid, that gain is ordinary capital gain and California taxes it in full. Only the interest is exempt.
- The other 4.86%. Taxable, as above.
- Other funds you assume are the same. Government money market funds often hold repurchase agreements, which do not qualify, and some fall below the 50% asset test entirely. The figure is per-fund and published per-fund.
SGOV and California state tax
- 95.14% of SGOV's 2025 income was from US government obligations, per the iShares tax document. That is the share California lets you exclude.
- The remaining 4.86% is taxable by California.
- The exclusion exists because SGOV held at least 50% of assets in federal obligations at every quarter-end, which is California's threshold test. New York and Connecticut apply the same structure.
- The figure changes each year and is published by the fund provider, not by your broker.
- Nothing on your 1099-DIV claims it for you. A blank box in your tax software means you paid the tax.
Common questions
Largely, but not entirely. For tax year 2025, iShares reported that 95.14% of SGOV's income came from US government obligations, and California allows that portion to be excluded from state taxable income. The remaining 4.86% is taxable. California permits the exclusion because SGOV held at least 50% of its assets in federal obligations at the end of each quarter of the fiscal year, which is the state's threshold test for pass-through fund income. This is general information, not tax advice.
95.14% for tax year 2025. BlackRock publishes the figure annually in its US Government Source Income Information document, and it moves slightly year to year because a fund's income can include small non-Treasury components such as interest on cash balances. Use the figure for the tax year you are filing, not a prior year's.
California requires that a mutual fund hold at least 50% of its assets in qualifying US government obligations before its shareholders may exclude the government-source portion of its dividends from state income. The test is applied to the fund's assets, not to your holding, and a fund that fails it passes nothing through even on the Treasury income it did earn. SGOV satisfies the test. New York and Connecticut apply the same 50% structure.
Generally no. Box 1a of your 1099-DIV shows the full dividend, and most brokers do not break out the government-source portion on the form itself. You or your tax software applies the published percentage and enters the result as a subtraction on Schedule CA (540). Tax software usually asks for the amount and leaves it blank by default, so an unanswered question means you paid California tax on the whole distribution.
No. The exemption under 31 U.S.C. 3124 covers interest income from federal obligations. A gain realised on selling shares is a capital gain, and California taxes capital gains as ordinary income with no exclusion for Treasury funds. In practice SGOV's price moves very little, so gains tend to be small, but they are taxable.