August 28, 1978
This is in reply to your recent letter, requesting a ruling on behalf of ********** designated Plan Coordinator for the Massachusetts State Employee Deferred Compensation Plan (Plan), as to certain Massachusetts income tax consequences of the Plan. This request is being made at the direction of the Deferred Compensation Committee, which oversees the day-to-day operation of the Massachusetts deferred compensation program.
The current state deferred compensation program was authorized under St. 1976, c. 422. On January 28, 1977, the Internal Revenue Service in a letter ruling to the Deputy State Treasurer ruled that, if a participant in the Plan as proposed reports his income using the cash receipts and disbursements method of accounting, the compensation he defers pursuant to the Plan will not be currently includible in federal gross income under Section 451 of the Internal Revenue Code. Amounts payable under the Plan will be includible in federal gross income during the taxable year in which such amounts are paid or otherwise made available, whichever is earlier, to the participant, his beneficiary, or his estate.
Section 2(a) of Chapter 62 of the Massachusetts General Laws defines Massachusetts gross income as federal gross income with modifications not here relevant. To the extent that amounts deferred are not includible in federal gross income for a particular taxable year, they are not includible in Massachusetts gross income for that taxable year.
I have previously ruled that amounts payable under such a plan will constitute wages subject to withholding in the taxable year in which such amounts are paid or otherwise made available, whichever is earlier, to the participant, his beneficiary, or his estate. Such amounts will also constitute items of gross income from sources within the Commonwealth and be subject to taxation when paid or otherwise made available to a non-resident of the Commonwealth. Therefore, to the extent that the income of the public employee is deferred for federal income tax purposes, it is also deferred for Massachusetts income tax purposes.
Based upon the foregoing, it is ruled that:
1. Monies deferred by public employees participating in the Plan, so long as such monies are considered deferred for federal income tax purposes, are deferred for Massachusetts income tax purposes and are not subject to withholding of Massachusetts income taxes at the time such monies are deferred.
2. Monies deferred by public employees participating in the Plan, so long as such monies are considered deferred for federal and Massachusetts income tax purposes, must not be included on Form W-2 (Wage and Tax Statement) as wages or other compensation paid during 1978 or any other applicable year.
3. Such monies deferred by public employees participating in the Plan are includible in Massachusetts gross income and are subject to withholding of Massachusetts income taxes during the taxable year in which such monies are paid or otherwise made available to such employees, their beneficiaries or estates through retirement, separation from state service, death or unusual hardship.
4. If public employees participating in the Plan have had monies deferred during 1978 and have heretofore had Massachusetts income taxes withheld thereon, such withheld taxes will be refunded or otherwise adjusted upon the filing of their 1978 Massachusetts income tax returns.
Very truly yours,
/s/Laurence D. Fitzmaurice
Laurence D. Fitzmaurice
Commissioner of Revenue
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