In general, the Massachusetts personal income tax relies on the provisions of the Internal Revenue Code ("the Code" or "IRC") as amended on January 1, 1998, and in effect for the taxable year, in determining Massachusetts gross income. In particular, Massachusetts follows IRC § 132(f) as amended and in effect on January 1, 1998, which excludes from an employee's gross income (subject to a monthly maximum) employer-provided parking, transit passes and vanpool benefits (i.e. "qualified transportation benefits"). However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. Technical Information Releases ("TIRs") 98-15, 99-23 and 00-4 describe these Code changes and how they affect the Massachusetts personal income tax. This TIR updates TIR 02-8 by providing the Massachusetts exclusion amounts for tax year 2003.
Revenue Procedure 2002-70 provides the 2003 cost-of-living inflation adjustment for the qualified transportation fringe benefit monthly exclusion amounts allowed under IRC § 132(f)(2). The federal exclusion amounts for tax year 2003 are $190 per month for employer-provided parking and $100 per month for employer-provided vanpool and transit pass benefits combined. Revenue Procedure 2002-70, § 3.11. In contrast, Massachusetts follows the inflation adjustment formula allowed under the January 1, 1998 Code. As a result, the Massachusetts exclusion amounts for tax year 2003 are the same as they were for 2002, $195 per month for employer-provided parking and $75 per month for employer-provided vanpool and transit pass benefits combined.
Massachusetts does not adopt the federal gross income exclusion for transit pass and employer-provided vanpool benefits if the employer offers the benefit as a reduction in salary and the employee chooses the benefit in lieu of salary. The federal provision allowing the choice of salary or transit pass and employer-provided vanpool benefits was enacted on June 6, 1998, and therefore, is not incorporated into the Code as amended and in effect on January 1, 1998.
As a result, if an employee's salary and federal gross income has been reduced by a transit pass or employer-provided vanpool benefit, the employer must add back the exclusion amount (in the employee's W-2) for Massachusetts tax purposes. TIR 99-23.
/s/ Alan LeBovidge
Commissioner of Revenue
April 4, 2003