Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2009

Governor's Budget Recommendation FY 2009

Tax Expenditure Budget


 
Fiscal Year 2009 Tax Expenditure Budget: Appendix B
Summary Table
 
Personal Income Tax (in Millions)

Tax Expenditure
Item
Number

FY20071

FY20081

FY2009

EXCLUSIONS FROM GROSS INCOME
Exemption of Premiums on Accident and Accidental Death Insurance1 1.001 17.6 18.2 18.8
Exemption of Premiums on Group-Term Life Insurance1 1.002 16.4 16.3 16.9
Exemption of Interest on Life Insurance Policy and Annuity Cash Value 1.003 196.5 201.8 207.1
Exemption of Employer Contributions for Medical Insurance Premiums and Medical Care1 1.004 665.9 732.4 789.1
Exemption of Annuity or Pension Payments to Fire and Police Personnel 1.005 N.A. N.A. N.A.
Exemption of Distributions from Certain Contributory Pension and Annuity Plans2 1.006 N.A. N.A. N.A.
Exemption of Railroad Retirement Benefits 1.007 3.9 4.0 4.2
Exemption of Public Assistance Benefits 1.008 133.9 137.1 139.5
Exemption of Social Security Benefits 1.009 611.5 633.5 656.2
Exemption of Workers' Compensation Benefits 1.010 6.8 7.3 7.8
Exemption for Dependent Care Expenses1 1.011 6.9 6.5 7.1
Exemption of Certain Foster Care Payments 1.012 4.5 5.3 5.2
Exemption of Payments Made to Coal Miners 1.013 Negligible Negligible Negligible
Exemption of Rental Value of Parsonages1 1.014 4.0 4.0 4.0
Exemption of Scholarships and Fellowships 1.015 14.1 14.9 15.6
Exemption of Certain Prizes and Awards 1.016 N.A. N.A. N.A.
Exemption of Cost-Sharing Payments 1.017 Negligible Negligible Negligible
Exemption of Meals and Lodging Provided at Work1 1.018 5.7 5.7 6.3
Treatment of Business-Related Entertainment Expenses1 1.019 N.A. N.A. N.A.
Exemption of Income from the Sale, Lease, or Transfer of Certain Patents 1.020 N.A. N.A. N.A.
Exemption of Capital Gains on Home Sales 1.021 356.8 354.8 381.1
Nontaxation of Capital Gains at Death 1.022 693.6 737.3 693.8
Exemption of Interest from Massachusetts Obligations 1.023 119.6 126.3 133.4
Exemption of Benefits and Allowances to Armed Forces Personnel1 1.024 9.8 10.5 10.8
Exemption of Veterans' Pensions, Disability Compensation and G.I. Benefits 1.025 16.1 16.9 17.7
Exemption of Military Disability Pensions 1.026 0.3 0.3 0.3
Exemption of Compensation to Massachusetts-Based Nonresident Military Personnel 1.027 5.3 5.5 5.7
Exemption for Taxpayers Killed in Military Action or by Terrorist Activity 1.028 N.A. N.A. N.A.
Exemption for Retirement Pay of the Uniformed Services 1.029 19.9 20.3 20.7
Parking, T-Pass and Vanpool Fringe Benefits 1.030 35.8 36.5 37.2
Health Savings Accounts 1.031 Included in 1.422 Included in 1.422 Included in 1.422
Employer-Provided Adoption Assistance 1.032 4.4 4.4 4.4
Employer-Provided Educational Assistance 1.033 6.0 6.0 6.6
Qualified Retirement Planning Services 1.034 N.A. N.A. N.A.
Department of Defense Homeowners Assistance Plan 1.035 N.A. N.A. N.A.
Survivor Annuities of Fallen Public Safety Officers 1.036 N.A. N.A. N.A.
Survivor Annuities of Fallen Astronauts 1.037 N.A. N.A. N.A.
Discharge of Indebtedness for Victims of Terrorism 1.038 N.A. N.A. N.A.
Discharge of Indebtedness for Health Care Professionals 1.039 N.A. Negligible Negligible
Archer Medical Savings Accounts 1.040 N.A. Included in 1.420 Included in 1.420

DEFERRALS OF GROSS INCOME
Net Exemption of Employer Contributions and Earnings of Private Pension Plans2 1.101 684.2 717.3 754.0
Treatment of Incentive Stock Options 1.102 N.A. N.A. N.A.
Exemption of Earnings on Stock Bonus Plans or Profit Sharing Trusts 1.103 N.A. N.A. N.A.
Exemption of Earnings on IRA and Keogh Plans2 1.104 183.6 198.2 214.9
Deferral of Capital Gains on Home Sales 1.105 N.A. N.A. N.A.
Nontaxation of Capital Gains at the Time of Gift 1.106 73.5 78.2 73.5

DEDUCTIONS FROM GROSS INCOME
Capital Gains Deduction 1.201 N.A. N.A. N.A.
Deduction of Capital Losses Against Interest and Dividend Income 1.202 N.A. N.A. N.A.
Excess Natural Resource Depletion Allowance 1.203 0.7 0.7 0.7
Abandoned Building Renovation Deduction 1.204 3.4 3.5 3.7

ACCELERATED DEDUCTIONS FROM GROSS INCOME
Accelerated Depreciation on Rental Housing 1.301 25.5 28.7 32.0
Accelerated Depreciation for Rehabilitation of Low-Income Housing 1.302 N.A. N.A. N.A.
Accelerated Depreciation on Buildings (other than Rental Housing) 1.303 4.3 5.1 5.1
Accelerated Cost Recovery System (ACRS) for Equipment 1.304 40.6 46.1 53.8
Deduction for Excess First-Year Depreciation 1.305 31.3 20.2 11.9
Five-Year Amortization of Business Start-Up Costs 1.306 3.0 3.4 3.4
Five-Year Amortization of Certain Operating Rights 1.307 N.A. N.A. N.A.
Expensing Exploration and Development Costs 1.308 Negligible Negligible Negligible
Expensing Research and Development Expenditures in One Year 1.309 1.2 1.2 1.2
Five-Year Amortization of Pollution Control Facilities 1.310 N.A. N.A. N.A.
Seven-Year Amortization for Reforestation 1.311 N.A. N.A. N.A.
Expensing Certain Capital Outlays of Farmers 1.312 0.4 0.4 0.4

DEDUCTIONS FROM ADJUSTED GROSS INCOME
Deduction for Employee Social Security and Railroad Retirement Payments 1.401 299.5 302.2 304.1
Deduction for Employee Contributions to Public Pension Plans2 1.402 N.A. N.A. N.A.
Additional Exemption for the Elderly 1.403 21.8 22.2 22.7
Additional Exemption for the Blind 1.404 1.1 1.2 1.2
Dependents Exemption Where the Child Earns Income3 1.405 N.A. N.A. N.A.
Deduction for Dependents Under 12 1.406 139.0 138.7 138.7
Personal Exemption for Students Age 19 or Over 1.407 11.0 11.2 11.4
Deduction for Adoption Fees 1.408 0.7 0.7 0.7
Deduction for Business-Related Child Care Expenses 1.409 13.6 14.0 14.4
Exemption of Medical Expenses 1.410 56.3 61.5 64.5
Rent Deduction 1.411 108.3 108.9 109.5
Nontaxation of Charitable Purpose Income of Trustees, Executors or Administrators 1.412 N.A. N.A. N.A.
Exemption of Interest on Savings in Massachusetts Banks 1.413 8.2 8.7 9.3
Tuition and Student Loan Interest Deduction 1.414 21.8 23.5 25.2

Charitable Contributions Tax Deduction
Educators' Deduction 1.416 Expired Expired Expired
Home Heating Fuel Deduction 1.417 15.4 Expired Expired
Deduction for Costs Involved in Unlawful Discrimination Suits 1.418 N.A. N.A. N.A.
Business Expenses of National Guard and Reserve Members 1.419 N.A. Negligible Negligible
Archer Medical Savings Accounts 1.420 N.A. Negligible Negligible
Deduction for Clean-Fuel Vehicles and Certain Refueling Property 1.421 N.A. Negligible Negligible
Health Savings Accounts 1.422 2.3 4.7 7.0
Commuter Deduction 1.423 4.3 4.3 4.4
Self-Employed Health Insurance Deduction 1.424 32.9 38.1 42.5
Student Interest Loan Deduction 1.425 12.4 13.2 13.9

CREDITS AGAINST TAX
Renewable Energy Source Credit 1.601 0.9 0.9 0.9
Credit for Removal of Lead Paint 1.602 3.2 3.2 3.3
Economic Opportunity Area Credit & Enhanced Economic Opportunity Area Credit 1.603 3.5 3.5 3.5
Credit for Employing Former Full-Employment Program Participants 1.604 0.1 0.1 0.2
Earned Income Credit 1.605 87.4 90.8 94.2
Septic System Repair Credit 1.606 16.8 17.4 18.0
Low Income Housing Tax Credit 1.607 0.5 0.8 1.0
Brownfields Credit 1.608 1.4 1.4 1.4
Refundable State Tax Credit Against Property Taxes for Seniors ("Circuit Breaker") 1.609 40.4 44.4 45.1
Historic Buildings Rehabilitation Credit 1.610 1.9 3.8 3.8
Film (or Motion Picture) Credit 1.611 1.2 26.2 26.2
Home Energy-Efficiency Tax Credit 1.612 29.1 Expired Expired
Medical Device User Fee Credit 1.613 0.4 0.4 0.4
INCOME TAX TOTAL2   4,942.3 5,154.3 5,311.0



List of Personal Income Tax Expenditures
1.000 EXCLUSIONS FROM GROSS INCOME
 
1.001 Exemption of Premiums on Accident and Accidental Death Insurance1
Employer contributions for premiums on accident and accidental death insurance are not included in the income of the employee and are deductible by the employer.

Origin:  IRC S. 106
Estimate:  $18.8

1.002 Exemption of Premiums on Group-Term Life Insurance1
Employer payments of employee group-term life insurance premiums for coverage up to $50,000 per employee are not included in income by the employee and are deductible by the employer.

Origin:  IRC S. 79
Estimate:  $16.9

1.003 Exemption of Interest on Life Insurance Policy and Annuity Cash Value
Interest, which is credited annually on the cash value of a life insurance policy or annuity contract, is not included in the income of the policyholder or annuitant. Only when a life insurance policy is surrendered before death or when annuity payments commence does the interest become subject to tax. (Interest on dividends left on deposit is taxable.)

Origin:  IRC S. 101
Estimate:  $207.1

1.004 Exemption of Employer Contributions for Medical Insurance Premiums and Medical Care1
Employer contributions for medical insurance premiums and reimbursements for medical care are not included in the income of the employee and are deductible by the employer.

Origin:  IRC S. 105 and 106
Estimate:  $789.1

1.005 Exemption of Annuity or Pension Payments to Fire and Police Personnel
Income from noncontributory annuities or pensions to certain retired fire and police personnel or their survivors are tax-exempt.

Origin:  M.G.L. c. 32
Estimate:  N.A.

1.006 Exemption of Distributions from Certain Contributory Pension and Annuity Plans2
Certain pensions and annuity distributions are tax-exempt under Massachusetts' law. They are payments from contributory plans of the U.S. government, Massachusetts and its subdivisions, and other states that do not tax such income from Massachusetts. Any benefits in excess of contributions not taxed by Massachusetts constitute this tax expenditure.

Origin:  M.G.L. c. 62, S. 2(a)(2)(E) and 3B(a)(4)
Estimate:  N.A.

1.007 Exemption of Railroad Retirement Benefits
Railroad retirement benefits are not taxed. (Massachusetts has not adopted Internal Revenue Code section 86, which taxes some of these benefits if a taxpayer's income is above a certain level.)

Origin:  M.G.L. c. 62, S. 2(a)(2)(H)
Estimate:  $4.2
No adjustment is made for any prior payments taxpayers may have made to fund this system since employee payments to this system are taxes rather than contributions.
1.008 Exemption of Public Assistance Benefits
Public assistance or welfare benefits are not taxed. These include Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI) benefits, and the like.

Origin:  Rev. Rul. 71-425, 1971-2 C.B. 76
Estimate:  $139.5

1.009 Exemption of Social Security Benefits
Social Security benefits paid to people age 65 or older and their dependents, to persons under 65 who are survivors of deceased workers, and to disabled workers and their dependents are not taxed. Massachusetts has not adopted Internal Revenue Code section 86, which taxes a portion of these payments where a taxpayer's income is above a certain level.

Origin:  M.G.L. c. 62, S. 2 (a)(2)(H)
Estimate:  $656.2
The comment under item 1.007 applies to this item as well.
1.010 Exemption of Workers' Compensation Benefits
Workers' compensation benefits are not taxed. These are benefits paid to disabled employees or their survivors for employment-related injuries or diseases.

Origin:  IRC S. 104 (a)(1)
Estimate:  $7.8

1.011 Exemption for Dependent Care Expenses1
Day care paid for or provided by an employer to an employee, the value of which does not exceed the employee's or employee's spouse's "earned" income, and does not exceed the amount of $5,000, is not included in the income of the employee and is deductible by the employer.

Origin:  IRC S. 129
Estimate:  $7.1

1.012 Exemption of Certain Foster Care Payments
Qualified foster care payments are not includible in the income of a foster parent.

Origin:  IRC S. 131
Estimate:  $5.2

1.013 Exemption of Payments Made to Coal Miners
Coal miners or their survivors may exclude from income payments for disability or death from black lung disease.

Origin:  IRC S. 104(a)(1)
Estimate:  Negligible

1.014 Exemption of Rental Value of Parsonages1
A minister may exclude from gross income a rental allowance or the rental value of a parsonage furnished to him or her.

Origin:  IRC S. 107
Estimate:  $4.0

1.015 Exemption of Scholarships and Fellowships
Degree candidates can exclude scholarships and fellowship income if the amounts are not compensation for services or for the payment of room, board or travel expenses.

Origin:  IRC S. 117
Estimate:  $15.6

1.016 Exemption of Certain Prizes and Awards
Prizes and awards are generally required to be included in income. The exemption of certain prizes and awards is generally limited to taxpayers who donate the proceeds to a charitable organization. Certain employee achievement awards are also excluded from gross income.

Origin:  IRC S. 74
Estimate:  N.A.

1.017 Exemption of Cost-Sharing Payments
Portions of government cost-sharing payments to assist in water and soil conservation projects are not includible in the recipient's income.

Origin:  IRC S. 126
Estimate:  Negligible

1.018 Exemption of Meals and Lodging Provided at Work1
The value of meals and lodging furnished to the employee by the employer on the business premises for the employer's convenience is not included in the income of the employee. The employer's expenses are deductible.

Origin:  IRC S. 119
Estimate:  $6.3

1.019 Treatment of Business-Related Entertainment Expenses1
With certain limitations, a business may take a deduction of up to 50% of the cost of business-related entertainment expenses. Generally, the value of the entertainment is not taxed as income to the persons who benefit from the expenditures. The effect is to provide the hosts and their guests with a nontaxable fringe benefit.

Origin:  IRC S. 162
Estimate:  N.A.

1.020 Exemption of Income from the Sale, Lease, or Transfer of Certain Patents
Incomes from the sale, lease or other transfer of approved patents for energy conservation, and income from property subject to such patents, are excluded from gross income for a period of five years.

Origin:  M.G.L. c. 62, S. 2(a)(2)(G)
Estimate:  N.A.

1.021 Exemption of Capital Gains on Home Sales
Taxpayers may exclude up to $250,000 of capital gain (or $500,000 if filing jointly) on the sale of a principle residence. This exclusion from gross income may be taken any number of times, provided the home was the filer's primary residence for an aggregate of at least two of the previous five years.

Origin:  IRC S. 121
Estimate:  $381.1
This expenditure and 1.105 (Deferral of Capital Gains on Home Sales) were changed by the Taxpayer Relief Act of 1997; item 1.105 (based on IRC 1034, the rollover of capital gains on the sale of a home) was repealed. In effect, both 1.105 and 1.021 were replaced with a modified IRC 121. The new IRC 121, which is the basis for Massachusetts tax expenditure 1.021, removed the age requirement and the "one-time-only" limitation.
1.022 Nontaxation of Capital Gains at Death
Ordinarily, capital gains are taxed at the time appreciated property is transferred. However, no tax is imposed on a capital gain when appreciated property is transferred at death. The appreciation that accrued during the lifetime of the transferor is never taxed as income.

Origin:  IRC S. 1001 and 1014
Estimate:  $693.8
See also item 1.106 below.
1.023 Exemption of Interest from Massachusetts Obligations
Interest earned on Massachusetts bonds is exempt. The exclusion applies to bonds of Massachusetts agencies and local subdivisions as well.

Origin:  M.G.L. c. 62, S. 2 (a)(1)(A)
Estimate:  $133.4

1.024 Exemption of Benefits and Allowances to Armed Forces Personnel1
Under the January 1, 1998 Code, Massachusetts allowed the federal exclusion for certain military fringe benefits including combat zone compensation, veterans' and medical benefits, disability benefits, moving allowances and a death gratuity benefit of $3,000. As a result of recent legislation under which the Commonwealth incorporated into Massachusetts personal income tax law the Code as amended and in effect on January 1, 2005 (hereinafter referred to as the "Code Update"). This exclusion was extended to include dependent care assistance under a dependent care assistance program, travel benefits received under the Operation Hero Miles program and an increased death benefit gratuity of $12,000.

Origin:  IRC S. 112-113
Estimate:  $10.8

1.025 Exemption of Veterans' Pensions, Disability Compensation and G.I. Benefits
These veterans' benefits are not taxed.

Origin:  38 U.S.C. S. 5301
Estimate:  $17.7

1.026 Exemption of Military Disability Pensions
Disability pensions paid to service personnel are fully excluded from gross income. The portion of a regular pension that is paid on the basis of disability may also be excluded.

Origin:  IRC S. 104(a)(4)
Estimate:  $0.3

1.027 Exemption of Compensation to Massachusetts-Based Nonresident Military Personnel
Compensation paid by the U.S. to nonresident uniformed military personnel on duty at bases within Massachusetts for services rendered while on active duty is defined as compensation from sources outside Massachusetts. It is therefore not taxed.

Origin:  50 U.S.C. App. S. 574; M.G.L. c. 62, S. 5A(c)
Estimate:  $5.7
This tax treatment follows U.S. statutory law.
1.028 Exemption for Taxpayers Killed in Military Action or by Terrorist Activity
Massachusetts residents who die in combat while in active military service, or who die as a result of terrorist or military action outside of the U.S. while serving as military or civilian employees of the U.S. are exempt from income taxation.

Origin:  M.G.L. c. 62, S. 25
Estimate:  N.A.

1.029 Exemption for Retirement Pay of the Uniformed Services
Effective January 1, 1997, income received from the United States government as retirement pay and survivorship benefits for a retired member of the Uniformed Services of the United States is exempt from the personal income tax. The Uniformed Services of the United States are: the Army, Navy, Air Force, Marine Corps, Coast Guard, and the Commissioned Corps of the Public Health Service and National Oceanic and Atmospheric Administration.

Origin:  M.G.L. c. 62, S. 2
Estimate:  $20.7

1.030 Parking, T-Pass and Vanpool Fringe Benefits
A federal and Massachusetts exclusion is allowed for employer-provided parking, transit passes and vanpool benefits (i.e. "qualified transportation benefits"), subject to monthly maximums. However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. As a result of the Code Update, for tax years starting on or after January 1, 2005, Massachusetts adopts the federal exclusion without any differences in exclusion amounts or allowed benefits.

Origin:  IRC sec. 132(f)
Estimate:  $37.2

1.031 Health Savings Accounts
For federal income tax purposes, the earnings in a Health Savings Account (HSA) account accrue on a tax-free basis, and qualified distributions from a HSA are excluded from gross income. Prior to the most recent Code update, Massachusetts taxed earnings in a HSA and also taxed distributions to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code Update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, a HSA.

Origin:  IRC sec. 223
Estimate:  Included in 1.422

1.032 Employer-Provided Adoption Assistance
Massachusetts adopts the federal exclusion for employer-provided adoption expenses paid (or treated as paid under IRC sec. 137) on or after January 1, 2005. In the case of an adoption of a child with special needs the exclusion applies regardless of whether the employee has qualified adoption expenses. For tax year 2007, the exclusion is limited to $11,390 per child and begins to be phased out for taxpayers with federal modified adjusted gross income in excess of $170,820, with complete phasing out of the deduction for taxpayers with federal modified adjusted gross income of $210,820.

Origin:  IRC sec. 137
Estimate:  $4.4

1.033 Employer-Provided Educational Assistance
Under the January 1, 1998 Code, Massachusetts had adopted the federal exclusion for qualified educational expenses reimbursed to an employee under an employer-provided education assistance program, however, for courses that began after May 31, 2000, Massachusetts no longer allowed the exclusion. As a result of the 2005 Code Update, Massachusetts adopts the federal exclusion for qualified educational expenses for undergraduate and graduate education expenses up to the federal annual maximum of $5,250 per calendar year.

Origin:  IRC secs. 127 and 132
Estimate:  $6.6

1.034 Qualified Retirement Planning Services
Massachusetts adopts the federal exclusion for the employee fringe benefit of retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan. Qualified employer plans include IRC sec. 401(a) plans, annuity plans, government plans, IRC sec. 403(b) annuity contracts, SEPs and SIMPLE accounts. This exclusion is due to expire for tax or plan years beginning after December 31, 2010.

Origin:  IRC sec. 132(m)
Estimate:  N.A.

1.035 Department of Defense Homeowners Assistance Plan
Massachusetts adopts the federal exclusion for the employee fringe benefit of payments received under the Homeowners Assistance Plan. Such payments are intended to compensate military personnel and certain civilian employees for a reduction in the fair market value of their homes resulting from military or Coast Guard base closure or realignment.

Origin:  IRC sec. 132(m)
Estimate:  N.A.

1.036 Survivor Annuities of Fallen Public Safety Officers
For both Massachusetts and federal tax purposes, an exclusion from income is allowed for amounts paid under a governmental plan as an annuity to the survivor of a public safety officer killed in the line of duty. However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. Massachusetts had allowed an exclusion for amounts received in tax years beginning after December 31, 1996, with respect to individuals dying after that date. As a result of the most recent Code update, Massachusetts adopts the federal exclusion as amended and in effect on January 1, 2005, that extends the exclusion for such annuities from, and including, individuals dying after December 31, 1996 to individuals dying on or before December 31, 1996.

Origin:  IRC sec. 101(h)
Estimate:  N.A.

1.037 Survivor Annuities of Fallen Astronauts
Massachusetts adopts the federal exclusion for death benefits paid by the U.S. government to the survivors of astronauts who die in the line of duty. The Massachusetts exclusion is effective for payments made on or after January 1, 2005.

Origin:  IRC sec. 101(i)
Estimate:  N.A.

1.038 Discharge of Indebtedness for Victims of Terrorism
Massachusetts adopts the federal exclusion for discharge of indebtedness due to the death of an individual resulting from the September 11, 2001, terrorist attacks or as the result of anthrax-related illness occurring on or after September 11, 2001, and before January 1, 2002.

Origin:  IRC sec. 108 & P.L. 107-134
Estimate:  N.A.

1.039 Discharge of Indebtedness for Health Care Professionals
Massachusetts adopts the federal exclusion for National Health Service Corps Loan Program repayments made to health care professionals. Loan repayments received under similar state programs eligible for funds under the Public Health Service Act are also excluded from income.

Origin:  IRC sec. 108(f)(4)
Estimate:  Negligible

1.040 Archer Medical Savings Accounts
For federal income tax purposes, the earnings in an Archer Medical Savings Account (MSA) account accrue on a tax-free basis, and qualified distributions from an Archer MSA are excluded from gross income. Prior to the 2005 Code update, Massachusetts taxed earnings in an Archer MSA for individuals who became active participants on or after January 1, 2001 and also taxed distributions for such individuals to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code Update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, an Archer MSA for all federally qualified individuals.

Origin:  IRC sec. 220
Estimate:  Included in item 1.420

1.100 DEFERRALS OF GROSS INCOME
 
1.101 Net Exemption of Employer Contributions and Earnings of Private Pension Plans2
Employer contributions to private, qualified employee pension plans are deductible by the employer up to certain amounts and are not included in the income of the employees. Income earned by the invested funds is not currently taxable to the employees. Benefits in excess of any employee contributions previously taxed by Massachusetts are taxable when paid out. The value of the tax deferral on contributions and on the investment income is a tax expenditure.

Origin:  IRC S. 401-415 in effect January 1, 1985 and M.G.L. c. 62 S. 2(a)(2)(F) and 5(b)
Estimate:  $754.0

1.102 Treatment of Incentive Stock Options
Massachusetts has adopted the federal rules for employee stock options. Generally, employers may offer employees options to purchase company stock at a later date at a price equal to the fair market value of the stock when the option was granted. At the time employees exercise the option, they do not include in income the difference between the fair market value and the price they pay. If they later sell the stock, they are taxed on the amount by which the price they receive for the stock exceeds the price they paid. Thus, income is deferred and is taxed as a capital gain instead of as compensation.

Origin:  IRC S. 421-425
Estimate:  N.A.

1.103 Exemption of Earnings on Stock Bonus Plans or Profit Sharing Trusts
Investment income earned by stock bonus plans or profit sharing trusts is not taxed currently for employees.

Origin:  M.G.L. c. 62, S. 5(b)
Estimate:  N.A.

1.104 Exemption of Earnings on IRA and Keogh Plans2
This includes exclusions from income for some retirement contributions; these exclusions and the earnings from them are taxed upon distribution. The deferral of tax on the investment income is a tax expenditure.

Origin:  M.G.L. c. 62, S. 2(a)(2)(F) and 5(b)
Estimate:  $214.9

1.105 Deferral of Capital Gains on Home Sales
The Taxpayer Relief Act of 1997 repealed this expenditure.

Origin:  IRC S. 1034
Estimate:  N.A.
Taxpayers may exclude up to $250,000 of capital gain (or $500,000 if filing jointly) on the sale of a principle residence. This exclusion from gross income may be taken any number of times, provided the home was the filer's primary residence for an aggregate of at least two of the previous five years. The capital gains on home sales are no longer deferred.
1.106 Nontaxation of Capital Gains at the Time of Gift
Ordinarily, capital gains are taxed at the time appreciated property is transferred. However, no tax is imposed on a capital gain when appreciated property is transferred by gift. The taxation of appreciation is deferred until the recipient transfers the property.

Origin:  IRC S. 1001, 1015
Estimate:  $73.5

1.200 DEDUCTIONS FROM GROSS INCOME
 
1.201 Capital Gains Deduction
Long-term capital gains realized from the sale of collectibles (as defined by sec. 408 (m) of the IRC) are eligible for a 50% deduction from the 12% capital gains tax.

Origin:  M.G.L. c. 62, S. 2(c)(3)
Estimate:  N.A.

1.202 Deduction of Capital Losses Against Interest and Dividend Income
Taxpayers may deduct up to $2,000 of net capital loss against interest and dividend income. This limit was reestablished in 2002.

Origin:  M.G.L. c. 62, S. 2(c)(2)
Estimate:  N.A.

1.203 Excess Natural Resource Depletion Allowance
Individuals or investors in extractive industries (mining or drilling natural resources) may deduct a percentage of gross mining income as a depletion allowance. The allowance may exceed the actual cost of the resource property. For a more detailed description of this tax expenditure, see corporate excise item 2.204.

Origin:  IRC S. 613 and 613A as in effect January 1, 1985
Estimate:  $0.7

1.204 Abandoned Building Renovation Deduction
Businesses renovating eligible buildings in Economic Opportunity Areas may deduct 10% of the cost of renovation from gross income. This deduction may be in addition to any other deduction for which the cost of renovation may qualify. To be eligible for this deduction, renovation costs must relate to buildings designated as abandoned by the Economic Assistance Coordinating Council.

Origin:  M.G.L. c. 62, S. 3(B)(a)(10)
Estimate:  3.7

1.300 ACCELERATED DEDUCTIONS FROM GROSS INCOME
 
1.301 Accelerated Depreciation on Rental Housing
Landlords and investors in rental housing may use accelerated methods of depreciation for new and used rental housing. Rental housing placed in service after 1988 is depreciated on a straight-line basis over a 27.5-year period. Rental housing placed in service before 1988 was depreciable over shorter periods (generally 19 or 20 years), and, instead of straight-line depreciation, the 175% declining balance method was permitted. Straight-line depreciation over the property's expected useful life is the generally accepted method for recovering the cost of building structures. The excess of allowable depreciation over such generally accepted depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC S. 168(b)
Estimate:  $32.0

1.302 Accelerated Depreciation for Rehabilitation of Low-Income Housing
Landlords and other investors in low-income housing may amortize rehabilitation expenditures initiated before 1987 over a five-year period. For a more detailed description of this tax expenditure, see corporate excise item 2.302.

Origin:  IRC S. 167(k)
Estimate:  N.A.

1.303 Accelerated Depreciation on Buildings (other than Rental Housing)
Individuals or investors in a trade or business may use accelerated methods of depreciation for buildings. Construction may be depreciated under methods that produce faster depreciation than economic depreciation. The precise rates have been changed repeatedly in recent years as the result of revisions in the federal tax code. Structures (other than rental housing) placed in service after 1987 are depreciated on a straight-line basis over a 31.5-year life. The excess of accelerated depreciation over economic depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC S. 167(j) and 168(b)
Estimate:  $5.1

1.304 Accelerated Cost Recovery System (ACRS) for Equipment
For depreciable tangible personal property placed in service after 1980, capital costs may be recovered using the Accelerated Cost Recovery System (ACRS), which applies accelerated methods of depreciation over set recovery periods. For property placed in service after 1987, Massachusetts has adopted the Modified Accelerated Cost Recovery System (MACRS), which generally uses double declining balance depreciation over specified periods that are substantially shorter than actual useful lives (200% declining balance for 3-, 5-, 7- and 10-year recovery property and 150% declining balance for 15- and 20-year property). The excess of accelerated depreciation over economic depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC S. 168
Estimate:  $53.8

1.305 Deduction for Excess First-Year Depreciation
Individuals or investors in a trade or business may elect to expense certain business assets purchased during the taxable year up to a maximum amount of $125,000. For taxpayers whose investment in eligible assets exceeds $500,000 in the year, the $125,000 ceiling is reduced by $1 for each dollar of investment above $500,000. Any remaining cost must be depreciated according to MACRS, as described in the preceding item. The immediate deduction is a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC S. 179
Estimate:  $11.9

1.306 Five-Year Amortization of Business Start-Up Costs
Individuals or investors in a trade or business may elect to treat business start-up expenditures as deferred expenses and amortize them over five years. For a more detailed description of this tax expenditure, see corporate excise item 2.304.

Origin:  IRC S. 195
Estimate:  $3.4

1.307 Five-Year Amortization of Certain Operating Rights
Individuals or investors in a trade or business may amortize over five years the cost of bus route, freight forwarding and certain other operating rights that have lost their economic value due to federal deregulation. For a more detailed description of this tax expenditure, see corporate excise item 2.310.

Origin:  Tax Reform Act of 1986, S. 243
Estimate:  N.A.

1.308 Expensing Exploration and Development Costs
Individuals or investors in extractive industries (mining or drilling natural resources) may take an immediate deduction for certain exploration and development costs. For a more detailed description of this tax expenditure, see corporate excise item 2.309; the provisions for individual taxpayers are somewhat more liberal than those that apply to corporations.

Origin:  IRC S. 263(c), 616 and 617 in effect January 1, 1985
Estimate:  Negligible

1.309 Expensing Research and Development Expenditures in One Year
Individuals or investors in a trade or business may take an immediate deduction for research and development expenditures. For a more detailed description of this tax expenditure, see corporate excise item 2.308.

Origin:  IRC S. 174
Estimate:  $1.2

1.310 Five-Year Amortization of Pollution Control Facilities
Individuals or investors in a trade or business may elect to amortize the cost of a certified pollution control facility over a five-year period. For a more detailed description of this tax expenditure, see corporate excise item 2.311.

Origin:  IRC S. 169
Estimate:  N.A.

1.311 Seven-Year Amortization for Reforestation
Individuals or investors in the forestry business may amortize the costs of reforestation over a seven-year period. For a more detailed description of this tax expenditure, see corporate excise item 2.313.

Origin:  IRC S. 194
Estimate:  N.A.

1.312 Expensing Certain Capital Outlays of Farmers
Farmers may use certain favorable accounting rules. For instance, they may use the cash basis method of accounting and may deduct up to 50% of non-paid farming expenses as current expenses even though these expenditures are for inventories on hand at the end of the year. They also may deduct certain capital outlays, such as expenses for fertilizers and soil and water conservation if they are consistent with a federal- or state-approved plan. Generally, these special rules are not available to farming corporations and syndicates.

Origin:  IRC S. 175, 180 and 182 and Reg. S. 1.61-4, 1.162-12 and 1.471-6
Estimate:  $0.4

1.400 DEDUCTIONS FROM ADJUSTED GROSS INCOME
 
1.401 Deduction for Employee Social Security and Railroad Retirement Payments
Taxes paid by employees to fund the Social Security and Railroad Retirement systems are deductible against "earned" income up to a maximum of $2,000 per individual.

Origin:  M.G.L. c. 62, S. 3B(a)(3)
Estimate:  $304.1
The estimate also covers item 1.402 below.
1.402 Deduction for Employee Contributions to Public Pension Plans2
Employee contributions to federal and state contributory pension plans are deductible against "earned" income up to a maximum of $2,000 per individual.

Origin:  M.G.L. c. 62, S. 3B(a)(4)
Estimate:  N.A. (included in item 1.401)

1.403 Additional Exemption for the Elderly
A taxpayer age 65 or over is entitled to an additional exemption against "earned" income of $700 ($1,400 for a married couple filing jointly if both spouses are age 65 or over).

Origin:  M.G.L. c. 62, S. 3B(b)(1)(C) and (2)(C)
Estimate:  $22.7

1.404 Additional Exemption for the Blind
A blind taxpayer is allowed an additional exemption against "earned" income of $2,200 ($4,400 for a married couple filing jointly if both spouses are blind).

Origin:  M.G.L. c. 62, S. 3B(b)(1)(B) and (2)(B)
Estimate:  $1.2

1.405 Dependents Exemption Where the Child Earns Income3
Taxpayers are allowed an additional exemption of $1,000 for a dependent child even when the child earns income against which a personal exemption can be taken.

Origin:  IRC S. 151(c) in effect January 1, 1988 and M.G.L. c. 62 S. 3B(b)(3)
Estimate:  N.A.
The estimate cannot be separated from the figure for the dependents exemption in endnote 3.
1.406 Deduction for Dependents Under 12
Individual taxpayers and married taxpayers filing jointly with one or more dependents under age 12, who do not claim the deduction for child care described in item 1.409 below, may claim this deduction. Filers with one dependent under 12 may deduct $3,600, while filers with two or more dependents under 12 may deduct $7,200.

Origin:  M.G.L. c. 62, S. 3B(a)(8)
Estimate:  $138.7

1.407 Personal Exemption for Students Age 19 or Over
A taxpayer may claim a dependent exemption of $1,000 for a child who is a full-time student even if he or she is 19 or over.

Origin:  IRC S. 151(c) in effect January 1, 1988 and M.G.L. c. 62 S. 3B(b)(3)
Estimate:  $11.4

1.408 Deduction for Adoption Fees
Adoption fees paid to a registered adoption agency are deductible against "earned" income.

Origin:  M.G.L. c. 62, S. 3B(b)(5)
Estimate:  $0.7

1.409 Deduction for Business-Related Child Care Expenses
Taxpayers qualifying for the credit for employment-related childcare expenses in the Internal Revenue Code are allowed a deduction against "earned" income for the amount of the expenses that qualify for the credit. Beginning in tax year 2001, the cap on this deduction was increased, and the coverage expanded to include elderly and disabled dependents. The cap increased from $2,400 to $3,600 for filers with one dependent, and from $2,400 to $4,800 for filers with two or more dependents. Beginning in tax year 2002, the cap was further increased to $4,800 for qualifying filers with one dependent and to $9,600 for filers with two or more dependents.

Origin:  IRC S. 21, in effect January 1, 1988 and M.G.L. c. 62, S. 3B(a)(7)
Estimate:  $14.4
For federal tax purposes, the requirement that employment-related child care expenses relate only to children under age 15 was further restricted to children under age 13. In addition, a federal change now requires a taxpayer to include employer-provided dependent care expenses when calculating the limitation amount of qualifying expenses.
1.410 Exemption of Medical Expenses
Medical and dental expenses in excess of 7.5% of federal adjusted gross income are deductible against "earned" income for taxpayers who itemize deductions on their federal returns.

Origin:  IRC S. 213 and M.G.L. c. 62, S. 3B(b)(4)
Estimate:  $64.5

1.411 Rent Deduction
Renters are able to deduct against Part B income one-half of the rent paid for a principal residence located in Massachusetts up to a maximum deduction of $3,000 per year. This maximum was last raised in tax year 2001.

Origin:  M.G.L. c. 62, S. 3B(a)(9)
Estimate:  $109.5

1.412 Nontaxation of Charitable Purpose Income of Trustees, Executors or Administrators
The adjusted gross income of trustees, executors or administrators, which is currently payable to or irrevocably set aside for public charitable purposes is tax-exempt.

Origin:  M.G.L. c. 62, S. 3A(a)(2) and B(a)(2)
Estimate:  N.A.

1.413 Exemption of Interest on Savings in Massachusetts Banks
Up to $100 ($200 on a joint return) of interest from savings deposits or savings accounts in Massachusetts banks is excluded from "earned" income.

Origin:  M.G.L. c. 62, S. 3B(a)(6)
Estimate:  $9.3

1.414 Tuition and Student Loan Interest Deduction
A federal and Massachusetts deduction is allowed for interest paid by the taxpayer, up to an annual maximum of $2,500, for a qualified education loan for graduate or undergraduate education, subject to taxpayer income limitations. Under the January 1, 1998 Internal Revenue Code, this deduction was limited to the first 60 months and subject to lower taxpayer income limitations. As a result of the 2005 Code Update, Massachusetts adopts the new federal provision that repealed the 60 month limitation and allows higher taxpayer income limitations, subject to annual inflation adjustments. For tax year 2007, the maximum deduction of $2,500 is reduced for taxpayers when federal modified adjusted gross income exceeds $50,000 ($105,000 for joint returns) and is completely eliminated when federal modified gross adjusted gross income is $65,000 ($135,000 for joint returns).

Origin:  M.G.L. c. 62, S. 3B(a)(11),(12)
Estimate:  $25.2

1.415 Charitable Contributions Tax Deduction
 
1.416 Educators' Deduction
Massachusetts adopts the deduction for expenses paid or incurred by an eligible educator for books, supplies, equipment and other qualified materials used in the classroom. The deduction is limited to $250 per eligible educator. This deduction expired at the end of tax year 2005.

Origin:  IRC sec. 62(a)(2)(D)
Estimate:  Expired

1.417 Home Heating Fuel Deduction
Expenses incurred for home heating oil, natural gas, or propane purchased between November 1, 2005 and March 31, 2006 were deductible. For homeowners and for renters who pay their own separate heating bills, the deduction was limited to the actual amount paid for home heating oil, natural gas or propane, or $800, whichever was less. For renters where the cost of heating is included in rental payments, the deduction was limited to 20% of rental payments, up to a maximum of $800. The deduction was available to single filers whose adjusted gross income was $50,000 or less, and to joint filers and heads of household whose adjusted gross income was $75,000 or less. Qualifying taxpayers could take the deduction in 2005 for purchases made in 2005 during the period November 1 through December 31, 2005. Where a taxpayer did not take the full $800 deduction in 2005, the taxpayer could take the remainder in 2006 for heating expenses in 2006 through March 31, 2006.

Origin:  Chapter 140 of the Acts of 2005
Estimate:  Expired

1.418 Deduction for Costs Involved in Unlawful Discrimination Suits
Massachusetts adopts the federal deduction for attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination, up to the amount included in gross income for the tax year from such claim.

Origin:  IRC secs. 62(a)(19) and 62(e)
Estimate:  N.A.

1.419 Business Expenses of National Guard and Reserve Members
Massachusetts adopts the deduction for unreimbursed overnight travel, meals and lodging expenses of National Guard and Reserve Members who must travel more than 100 miles from home to perform services as a National Guard or reserve member.

Origin:  IRC secs. 62(a)(2)(E) and 162(p)
Estimate:  Negligible

1.420 Archer Medical Savings Accounts
Under the January 1, 1998 Code, Massachusetts allowed a deduction for an Archer Medical Savings Account (MSA) contribution only for individuals who were active MSA participants before January 1, 2001. As a result of recently enacted legislation that aligned the Massachusetts tax code with the Internal Revenue Code as of January 1, 2005, Massachusetts adopts the federal deduction for Archer MSA contributions made on or after January 1, 2005 for all federally qualified individuals.

Origin:  IRC sec. 220
Estimate:  Negligible

1.421 Deduction for Clean-Fuel Vehicles and Certain Refueling Property
A federal and Massachusetts deduction is allowed for a portion of the cost of qualifying motor vehicles that use clean-burning fuel. Under the January 1, 1998 Code, this deduction was due to expire for vehicles placed in service after December 31, 2004. As a result of recently enacted legislation that aligned the Massachusetts tax code with the Internal Revenue Code as of January 1, 2005, Massachusetts adopts the new federal provision allowing the deduction for vehicles placed in service on or before December 31, 2006.

Origin:  IRC secs. 62(a)(14) and 179A
Estimate:  Negligible

1.422 Health Savings Accounts
Massachusetts adopts the federal deduction allowed to individuals for contributions to a Health Savings Account, subject to federal limitations, which are adjusted annually for inflation. For calendar year 2007, the maximum deduction limit is $2,850 for an individual plan and $5,650 for a family plan. The maximum additional deduction for individuals age 55 or older is $800.

Origin:  IRC secs. 62(a)(19) and 223
Estimate:  $7.0

1.423 Commuter Deduction
(Note: item 1.423 was formerly the temporary Tuition and Fees Deduction)

Origin:  M.G.L. Chapter 62, Sec. 3 (B) (a) (15)
Estimate:  $4.4

1.424 Self-Employed Health Insurance Deduction
Massachusetts adopts the federal deduction allowed to self-employed individuals for premiums on health insurance. Insurance may be for the individual, spouse, or member of their family. The insurance must be established under the self-employed individual's business.

Origin:  IRC secs. 162(I)
Estimate:  $42.5

1.425 Student Interest Loan Deduction
Massachusetts allows as an option the federal "interest on education loans" deduction. The federal deduction phases out based on modified AGI. Alternatively, Massachusetts allows a deduction of undergraduate student loan interest. Filers may only choose one of these deductions.

Origin:  M.G.L. c. 62, S. 2(d)(1) and I.R.C. secs. 62(a)(17), ss 221.
Estimate:  $13.9

1.600 CREDITS AGAINST TAX
 
1.601 Renewable Energy Source Credit
Owners and tenants of residential property located within Massachusetts who are not dependents and who occupy the property as a principal residence are allowed a credit up to $1,000, or an amount equal to 15% of the cost of a renewable energy source. Unused credits may be carried forward for three years.

Origin:  M.G.L. c. 62, S. 6(d)
Estimate:  $0.9
This tax credit was originally for up to 35% of the cost of a renewable energy source; for tax years commencing after December 31, 1988 and before January 1, 1991, it was limited to 25%. It is currently limited to 15% with the $1,000 cap.
1.602 Credit for Removal of Lead Paint
A tax credit is provided in the amount of the cost of removing or covering lead paint on each residential unit up to $1,500. A seven-year carryover of any unused credit is permitted.

Origin:  M.G.L. c. 62, S. 6(e)
Estimate:  $3.3

1.603 Economic Opportunity Area Credit & Enhanced Economic Opportunity Area Credit
Businesses investing in qualified property in an Economic Opportunity Area are entitled to a credit against tax of 5% of the cost of the property. To qualify for the 5% credit, the property must be used exclusively in a certified project in an Economic Opportunity Area. To be certified, the Economic Assistance Coordinating Council must approve a project.

Origin:  M.G.L. c. 62, S. 6(g)
Estimate:  $3.5

1.604 Credit for Employing Former Full-Employment Program Participants
Employers who continue to employ former participants of the S.110(1) full employment program in non-subsidized positions are eligible to receive a tax credit equal to $100 per month for each month of non-subsidized employment, up to a maximum of $1,200 per employee, per year.

Origin:  St. 1995, c. 5, S. 110(m)
Estimate:  $0.2

1.605 Earned Income Credit
Effective January 1, 1997, taxpayers were allowed a refundable credit against Massachusetts tax equal to 10% of the amount of the earned income credit claimed on their federal individual income tax returns. Effective January 1, 2001, the allowed percentage was increased to 15%.

Origin:  M.G.L. c. 62, S. 6(h)
Estimate:  $94.2

1.606 Septic System Repair Credit
Taxpayers required to repair or replace a failed cesspool or septic system pursuant to the provisions of Title V, as promulgated by the Department of Environmental Protection in 1995, are allowed a credit equal to 40% of the design and construction costs incurred (less any subsidy or grant from the Commonwealth), up to a maximum of $1,500 per tax year and $6,000 in total. Unused credits may be carried forward for up to three years.

Origin:  M.G.L. c. 62, S. 6(i)
Estimate:  $18.0

1.607 Low Income Housing Tax Credit
Provides five years of tax credits to developers who set aside a specified percentage of housing units for low-to-moderate income renters. The credits may be sold or transferred to another taxpayer.

Origin:  M.G.L. c. 62, S. 6I a
Estimate:  $1.0

1.608 Brownfields Credit
Recent legislation extended the Brownfields credit to nonprofit organizations, extended the time from for eligibility for the credit, and permitted the credit to be transferred, sold, or assigned. Under prior law, net responsive removal costs incurred by a taxpayer between August 1, 1998 and August 5, 2005, taxpayers were allowed a credit for amounts expended to rehabilitate contaminated property owned or leased for business purposes and were located within an economically distressed area. Recent legislation changed the commencement cut-off date from August 5, 2005 to August 5, 2011, and the time for incurring eligible costs that qualify for the credit to January 1, 2012.

Origin:  M.G.L. c. 62, S.6 (j)
Estimate:  $1.4

1.609 Refundable State Tax Credit Against Property Taxes for Seniors ("Circuit Breaker")
Seniors are eligible for a tax credit to the extent that their property taxes -- or 25% of rent -- exceed 10% of their income. Income limits and a cap on the maximum assessed value of the filer's primary residence apply. The maximum credit is also adjusted annually for inflation. The maximum base credit was $385 for tax year (TY) 2001, $790 for TY02, $810 for TY03, $820 for TY04, $840 for TY05, $870 for TY06, and $900 for TY07.

Origin:  M.G.L. c. 62, S. 6 (k); The chapter 136 of the Acts of 2005.
Estimate:  $45.1

1.610 Historic Buildings Rehabilitation Credit
If a structure is listed on the National Historic Register and has been substantially rehabilitated in keeping with its historical character, it may qualify for this credit. To qualify, the project must be certified by the Massachusetts Historical Commission, which determines the amount of qualifying expenditures. Filers may claim up to 20% of their qualified rehabilitation expenditures. Credits may be carried forward for up to 5 years. The expenditure for this item (combined with the Historic Rehabilitation Credit for all business filers, item 2.610) was originally capped at $15 million per year, with a start date for the credit of January 1, 2005 and an end date of December 31, 2009. Chapter 123 of the Acts of 2006 extended the availability of the credit for an additional two years, to December 31, 2011, and increased the annual $15 million cap amount to $50 million. The credits may be sold or transferred to another taxpayer.

Origin:  M.G.L. c. 62, S. 6 J, Chapter 464 of the Acts of 2004, St. 2006, c. 123, S. 51 and 65
Estimate:  $3.8

1.611 Film (or Motion Picture) Credit
Individual income tax filers engaged in the making of a motion picture are allowed two credits:

Origin:  "An Act Providing Incentives to the Motion Picture Industry", St. 2005, c. 158, signed into law on November 23, 2005 and "An Act Providing Incentives to the Motion Picture Industry", St. 2007, c. 63; M.G.L. c. 63.
Estimate:  $26.2

1.612 Home Energy-Efficiency Tax Credit
A credit had been allowed for owners of residential property located in Massachusetts for certain energy efficient heating items purchased between November 1, 2005 and March 31, 2006 for installation in such property.

Origin:  Chapter 140 of the Acts of 2005
Estimate:  Expired

1.613 Medical Device User Fee Credit
Medical device companies that develop or manufacture medical devices in Massachusetts can claim a credit equal to 100% of the user fees paid by them when submitting certain medical device applications and supplements to the United States Food and Drug Administration. The credit is also transferable. For the personal income tax, the credit applies to any qualifying entity organized as a sole proprietorship, partnership, limited liability company, corporate trust or other business where the income is taxed directly.

Origin:  M.G.L. c. 62, S. 6 1/2, Chapter 145 of the Acts of 2006.
Estimate:  $0.4


KEY          ORIGIN         
          IRC                               Federal Internal Revenue Code (26 U.S.C.)
                    U.S.C                              United States Code
                    M.G.L.                     Massachusetts General Laws
                    Rev. Rul.; C.B.           Revenue Ruling; Cumulative Bulletin of the U.S.                                                                       Treasury
                    ESTIMATES
          All estimates are in $ millions.

ENDNOTES:

1 This Item and others citing this endnote cover employee fringe benefits. We accept as standard the following treatment of these benefits: the expense incurred by the employer in providing the benefit is properly deductible as a business expense and the benefit is taxed as compensation to the employee as if the employee had received taxable compensation and then used it to purchase the benefit. Of course, there are problems with this analysis. In some cases, the "benefit" is more a condition of employment than a true benefit. For example, a teacher required to have lunch in the school cafeteria may prefer to eat elsewhere even if the school lunch is free. On the other hand, in many cases the provision of tax-free employee benefits is clearly a substitution for taxable compensation.

2 This Item and others citing this endnote cover contributory pension plans. The standard tax treatment of these plans is as follows:
Component                                        Standard Treatment
Contributions:                                        Made out of income that is currently taxed to the employee.
Investment Income:                                        Taxed to the employee as "earned" income.
Distributions from Pension Funds:                    Tax-free to the extent they are made out of dollars previously taxed to the
                                                  employee as contributions or investment income.

The non-standard treatment of contributions, investment income, or distributions as described in items 1.006, 1.101, 1.104, and 1.402, results in either nontaxation or deferrals of tax.


3 FY09 estimates for the basic personal exemptions and the no-tax status discussed in the introduction to the personal income tax are (in millions of dollars):

          Personal exemption for single taxpayers: $287
          Personal exemption for married couples: $531
          Personal exemption for married taxpayers filing separately: $13
          Dependents exemption: $94
          Personal exemption for heads of households: $95
          No tax status/Limited income credits: $31

It should be noted that Chapter 186 of the Acts of 2002 reduced personal exemptions for tax year by 25% from their 2001 levels effective in tax year 2002; one-quarter of this reduction was restored effective tax year 2005, with additional one-quarter amounts restored in tax years 2006, 2007, and 2008. These changes in personal exemptions are reflected in the estimates above.

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