Some employees who were reimbursed for business expenses during 1989 may have received W-2 Forms that incorrectly report the reimbursements as taxable Massachusetts compensation. For most employees who received reimbursements, however, the amount reported as 1989 Massachusetts compensation on Form W-2 is correct. To determine whether reimbursed business expenses were incorrectly reported as Massachusetts compensation employees should compare their own records to the amounts reported on their W-2 Forms or check with their employers.
This Technical Information Release (TIR) explains how employees who have received W-2 Forms incorrectly reporting reimbursed employee business expenses as Massachusetts compensation may deduct those reimbursements from Massachusetts gross income when computing their income tax for 1989. The TIR applies only to the Massachusetts income tax imposed by General Laws Chapter 62 and only to returns filed for 1989 taxable years.
The Internal Revenue Service recently adopted new income reporting rules, applicable to taxable years beginning on or after January 1, 1989, under which amounts employers pay to their employees as reimbursements for employee business expenses should not be included in compensation reported on the employees' W-2 Forms if the reimbursements are made under accountable plans as defined in the new federal rules. See Temp. Treas. Reg. § 1.62-2T(c)(2)-(4). The Massachusetts Department of Revenue expects employers to use the new federal rules to exclude most reimbursed employee business expenses from Massachusetts compensation for Massachusetts income reporting purposes, starting with 1989 taxable years. Some employers have not correctly applied the new rules to 1989 reimbursed employee business expenses. See I.R.S. Notice 90-14, 1990-7 I.R.B. 20. As a result, reimbursed employee business expenses that employers were not required to report, nevertheless may have been included in Massachusetts compensation on some employees' W-2 Forms.
Claiming the Deduction
The amount of the Massachusetts deduction for reimbursed employee business expenses is the amount of reimbursed employee business expense deductible under General Laws Chapter 62, § 2(d)(1) and Internal Revenue Code § 62(a)(2)(A) that is included in Massachusetts compensation reported in Box 18 of the employee's W-2 Form. Employees may claim the deduction by entering that amount on Line 23 of Form 1 or Line 22 of Form 1-NR and writing on or directly above the appropriate line, "Reimbursed Expenses". Employees who are not otherwise required to file U.S. Form 2106 need not attach a copy of that form to claim the deduction.
Employees who have filed their 1989 returns and who have incorrectly included deductible reimbursed employee business expenses in Massachusetts gross income may claim the deduction by filing an amended return using Form 33X.
Stephen W. Kidder
Commissioner of Revenue
April 6, 1990