Nearly all of your FDLXX dividends qualify for the FDLXX California tax exemption. For the 2025 tax year, Fidelity reported that 98.67 percent of the fund’s income came from U.S. government obligations, and the fund clears California’s qualifying threshold every quarter.1Fidelity. Percentage of Income From US Government Securities California residents can subtract that portion of their FDLXX dividends when filing a state return, which matters in a state where the top marginal rate reaches 13.3 percent.
Why FDLXX Qualifies in California
Interest on direct U.S. Treasury obligations is exempt from state tax under 31 U.S.C. ยง 3124.2Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation When you hold those Treasuries through a mutual fund, California adds its own gate. Revenue and Taxation Code Section 17145 requires the fund to hold at least 50 percent of its total assets in state-tax-exempt obligations at the close of every quarter of the tax year.3California Legislative Information. California Revenue and Taxation Code 17145 Miss the threshold in any single quarter and the fund cannot pass through any exempt-interest dividends for the whole year. It’s all or nothing.
FDLXX clears that bar easily. As of April 30, 2026, the portfolio held roughly 81.83 percent Treasury bills and 19.09 percent Treasury coupon securities, with nothing in repurchase agreements or other money market instruments.4Fidelity. Fidelity Treasury Only Money Market Fund (FDLXX) That near-100 percent Treasury composition is why the fund’s qualifying percentage stays so high year after year.
One warning before you apply this to anything else in your account: the “Treasury Only” label in the fund’s name is doing real work. Other Fidelity money market funds that mix Treasuries with agency debt and repos can have much lower qualifying percentages, and some may slip below 50 percent in a given quarter. Don’t assume another Fidelity money market fund gets the same California treatment.
Calculating Your Exempt Amount
The math is simple. Take your total ordinary dividends from FDLXX, shown in Box 1a of Form 1099-DIV, and multiply by the qualifying percentage from Fidelity’s annual report. For 2025, that percentage is 98.67 percent.1Fidelity. Percentage of Income From US Government Securities If you received $2,000 in ordinary dividends from FDLXX, the exempt portion is $1,973.40.
You may not need to do the multiplication yourself. Fidelity calculates state-exempt income in the supplemental section of the Consolidated 1099 Tax Reporting Statement for applicable funds, so check that section first.5Fidelity. Fidelity Mutual Fund Tax Information The annual percentages are also published in Fidelity’s fund data and rates table through its tax information center.6Fidelity. Fund Data and Rates Table
Reporting the Subtraction on Schedule CA (540)
You claim the exemption as a subtraction on Schedule CA (540), the form that adjusts federal adjusted gross income for California purposes.7State of California Franchise Tax Board. 2025 Instructions for Schedule CA (540) Enter your exempt amount on Line 2 in Column B (Subtractions) of Part I, Section A. That removes the dollars from the income California taxes.
If you prepare your return with software, the California interview will prompt you for dividends from U.S. government obligations that are not taxable by the state. Enter the pre-calculated figure there and the software will drop it onto the right line.
Records to Keep
Hold onto three documents together: your Form 1099-DIV, Fidelity’s report showing the qualifying percentage for the year, and your filed Schedule CA (540).8State of California Franchise Tax Board. Keeping Your Tax Records If the Franchise Tax Board questions the subtraction, those three documents are the proof.
California’s standard audit window for a personal income tax return is four years from the later of the due date or the date you filed.9State of California Franchise Tax Board. Manual of Audit Procedures – Chapter 4 Keep the records for at least that long. The FTB charges 7 percent annual interest on underpayments for the period through June 30, 2026, so a subtraction that gets reversed years later carries real interest on top of the extra tax.10State of California Franchise Tax Board. Interest and Estimate Penalty Rates