December 30, 1983

You inquire whether amounts deducted from the salary of a judge appointed after January 1, 1975 and deposited to the credit of the "judges' retirement fund", pursuant to General Laws Chapter 32, Section 65D, are includible in Massachusetts gross income and subject to Massachusetts withholding for the taxable year in which the deductions are made. You also inquire whether amounts withheld from the compensation of a state employee and deposited to the credit of the state employee retirement system, pursuant to General Laws Chapter 32, Section 22, are includible in Massachusetts gross income and subject to Massachusetts withholding for the taxable year in which the deductions are made.

Massachusetts gross income is federal gross income as defined under the Internal Revenue Code as amended on February 1, 1983 with certain modifications. (G.L. c. 62, § 2). Federal gross income means all income from whatever source derived, including compensation for services. (I.R.C. § 61).

Massachusetts gross income is divided into Part A taxable income, which is taxed at the rate of 10%, and Part B taxable income, which is taxed at the rate of 5%. Part A income is composed of dividends, net capital gain, and interest other than interest on Massachusetts savings deposits. Part B income is all other income subject to taxation. (G.L. c. 62, § 2(b)).

All sums deducted from wages as contributions to any annuity, pension, endowment or retirement fund of the United States government, the Commonwealth or any of its political subdivisions are deductible from Massachusetts Part B adjusted gross income in determining Part B taxable income, provided that the deductions for such contributions and for taxes paid to the United States under the Federal Insurance Contributions Act ("FICA") and the Federal Railroad Retirement Act ("FRRA") may not in the aggregate exceed $2,000. (G.L. c. 62, § 3(B)(a)(4)).

Effective for tax years beginning after December 31, 1978, the compensation deducted from a judge's salary pursuant to a qualified state judicial plan is not incredible in federal gross income. (P.L. 97-248, § 252). Public Law 97-248, Section 252 amended Subsection (c) of Section 131 of the Revenue Act of 1978; it did not amend the Internal Revenue Code and is not a provision of the Code as amended on February 1, 1983.

A qualified state judicial plan is a retirement plan for the exclusive benefit of its judges which meets the following requirements:

1. the plan has been continuously in existence since December 31, 1978;

2. all judges eligible to benefit under the plan are required to participate and to contribute the same fixed percentage of their basic or regular rate of compensation;

3. the plan does not provide an option to plan participants as to contributions or benefits the exercise of which would affect the amount of the participants' currently incredible compensation;

4. a judge's retirement benefit under the plan is a percentage of the compensation of judges of the state holding similar positions; and

5. the plan may not pay benefits for a participant which exceed the limitation on benefits permitted under qualified defined benefit plans in Code Section 415(b). (P.L. 97-248, § 252).

The Massachusetts judges' retirement fund meets the requirements of a qualified state judicial plan under Public Law 97-248, Section 252, and, therefore, amounts deducted from the salary of a judge and deposited to the credit of the fund are not includible in federal gross income for federal income tax purposes.

Compensation is subject to Massachusetts income tax withholding if it is subject to income taxation under Massachusetts General Laws Chapter 62 and if it constitutes wages as defined in Internal Revenue Code Section 3401(a) or periodic payments or nonperiodic distributions as defined in Code Section 3405 and subject to federal withholding. (G.L. c. 62B, §§ 1, 2). The term "wages" means all remuneration for services performed by an employee for his employer, with certain exceptions not applicable here. (I.R.C. § 3401).

Based upon the foregoing it is ruled:

1. Amounts deducted from the salary of a judge appointed after January 1, 1975 and deposited to the credit of the Massachusetts judges' retirement fund are includible in Massachusetts gross income and are subject to Massachusetts income tax withholding.

2. Amounts withheld from the salary of a state employee and deposited to the credit of the state employee retirement system are includible in Massachusetts gross income and are subject to Massachusetts income tax withholding.

3. Amounts withheld from salaries of judges and state employees and deposited to the credit of the Massachusetts judges' retirement fund or the state employee retirement system are deductible from their Massachusetts Part B adjusted gross income in determining Part B taxable income. The taxpayer may deduct up to a maximum of $2,000 in the aggregate for the amounts deposited in such funds and for taxes paid under FICA and FRRA.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson
Commissioner of Revenue

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LR 83-95