FACTS: Taxpayer Cooper has a savings account with a balance of $150,000 in Money Bank, a bank located in Massachusetts. In addition, Cooper has a time deposit account in Money Bank which also has a principal amount of $150,000. During the taxable year, Cooper earns interest on both the savings account and the time deposit account.

ISSUE 1: Is the interest earned on the savings account with a balance of $150,000 included in Cooper's Part A or Part B income?

ISSUE 2: Is the interest earned on the time deposit with a principal amount of $150,000 included in Cooper's Part A or Part B income?

DISCUSSION: Generally, interest is included in a Massachusetts taxpayer's Part A income, taxed at 10%. G.L. c. 62, § 2(b)(1). However, Massachusetts law provides that interest earned on savings deposits or accounts in Massachusetts banks is included in Part B income, taxed at 5%. G.L. c. 62, § 2(b)(1)(A). The 5% rate applies regardless of the size of the savings deposit or account.

Chapter 62, section 2 also governs the taxation of interest earned on term and time deposits in Massachusetts banks. This interest is included in Part B income only if the principal amount of the deposit is less than $100,000. G.L. c. 62, § 2(b)(1)(A). (Generally, term and time deposits are deposits where, for a specified period of time, withdrawals cannot be made without incurring a penalty.) Thus, if the principal amount in a term or time deposit equals or exceeds $100,000, the interest earned on the entire amount is included in the taxpayer's Part A income, taxed at 10%.

The limitation of $100,000 applies separately to each account. Where two or more people jointly hold a term or time deposit, the $100,000 limitation still applies to the account. The limitation is not affected by the joint ownership.

DIRECTIVE 1: The interest earned on the savings account is included in Cooper's Part B income, taxed at 5%.

DIRECTIVE 2: The total amount of interest earned on the time deposit is included in Cooper's Part A income, taxed at 10%, because the principal amount of the account is not less than $100,000.

REFERENCE: G.L. c. 62, § 2(b).

/s/Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue

31 December 1986

DD 86-38


This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 C.M.R. § 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.