- General Rules and Qualifications
- Disallowance of Certain Entertainment Expenses, etc.
- Special Provisions for:
- Worksheet Examples
- Nonresidents and Part-year Residents
- Where to Report on Original Tax Return; What to Enclose
- Documentation to Submit with Abatement/Amended Return
- Massachusetts and Federal References
For federal purposes, taxpayers may deduct trade or business and certain other expenses as allowed under IRC Section 162, namely expenses that exceed 2% of federal AGI. Massachusetts uses this as a starting point for calculating its own deduction.
The Massachusetts deduction is limited to the deductions allowed by Part VI of the Internal Revenue Code which:
- for an employee, include unreimbursed expenses of travel, meals and lodging while away from the tax home over a sleep period, or expenses of transportation paid or incurred by the employee in connection with the performance of services as an employee; or
- for a salesperson, are federally deductible unreimbursed employee expenses if they are attributable to a trade or business in which the employee is a salesperson who solicits business for an employer away from the employer's place of business.
50% of qualified business meals and entertainment expenses may be claimed as a deduction. This limited deduction is also subject to the Massachusetts restriction that the business meal expenses (and entertainment) must be incurred while away from home.
To qualify for the Massachusetts employee business expense deduction, three conditions must be met:
- the taxpayer must itemize deductions on the federal return;
- if filing a joint U.S. return, a joint return must be filed in Massachusetts; and
- unreimbursed business expenses combined with the other miscellaneous itemized deductions (reported on U.S. Form 1040, Schedule A, lines 20 - 22) must exceed 2% of federal adjusted gross income reported on U.S. Form 1040, Schedule A, line 25. Unreimbursed travel and transportation expenses of a handicapped employee which are also impairment related business expenses are not subject to the 2% floor.
Unreimbursed expenses in item 3 above are limited to:
- travel and transportation expenses for work;
- expenses for lodging and meals that are incurred on overnight business travel;
- transportation from a first job to a second job;
- job seeking expenses if travel related and only if incurred seeking employment in the same field;
- expenses of a qualified performing artist as defined under the Code;
- impairment related expenses of a handicapped person;
- operating expenses (e.g., expenses for gasoline, oil, tires, repairs, insurance, depreciation, parking fees and tolls, licenses, and garage rent) incurred for automobiles used in a trade or business; and
- travel/transportation cost necessary for allowable education expenses.
Outside salespeople may claim other unreimbursed expenses in addition to the items listed above. An outside salesperson may also claim non-travel expenses such as an office in the home, a home computer, telephone expenses and non-travel meals.
Massachusetts adopts the federal treatment for Employee Business expenses, under the Internal Revenue Code, as amended and in effect on January 1, 2005 and automatically adopts any future changes to the Federal provisions for these expenses.
- for residents, the Schedule Y, Line 1 - Massachusetts Employee Business Expense Deduction Worksheet;
- for nonresidents and part-year residents, the Schedule Y, Line 1 - Massachusetts Employee Business Expense Deduction Worksheet. The amount to be reported on this worksheet is for only those expenses that are directly related to taxable income reported on Form 1 NR/PY.
Same-Sex Joint Filers:
For Massachusetts state income tax purposes, beginning on or after May 16, 2004 Massachusetts recognizes the right of same-sex couples to be married. Same-sex spouses will file as married persons, and have the option of filing either Massachusetts joint returns or married filing separate returns. Massachusetts will recognize valid same-sex marriages for tax periods that end on or after May 16, 2004, but will not recognize same-sex marriages for tax periods ending prior to May 16, 2004.
Same-sex joint filers will recalculate their combined allowable expenses as appearing on Federal Form 1040, Schedule A, under the heading 'Job Expenses and Most Other Miscellaneous Deductions', combining their AGIs to use in performing the 2% calculation, and will complete the worksheet in the Form 1 instructions.
No Tax Status and Limited Income Credit Calculation:
This deduction impacts the calculation of No Tax Status and the Limited Income Credit as it is treated as an adjustment to arrive at Massachusetts adjusted gross income on the Massachusetts AGI Worksheet and Schedule NTS-L-NR/PY.
Disallowance of Certain Entertainment, etc., Expenses
Massachusetts follows the current federal limitations on the following nondeductible expenses:
Travel expenses may not be claimed as business deductions for a spouse, dependent or other individual who accompanies the taxpayer on a business trip unless the following three conditions are met:
- such person is an employee of the person who is paying for such expenses;
- the travel of such person serves a bona fide business purpose; and
- the expenses of such person are otherwise deductible.
Meals and Entertainment Expenses:
50% of qualified business meals and entertainment expenses may not be claimed as a deduction. This limited deduction is also subject to the Massachusetts restriction that the business meal expenses (and entertainment) must be incurred while away from home.
- Residents must complete the Schedule Y, Line 1 - Massachusetts Employee Business Expense Deduction Worksheet, 2012 Form 1 Instructions, Page 18 . If qualified, enter the amount from Line 8 of the worksheet on Form 1, Schedule Y, Line 1.
- Nonresidents and part-year residents must complete the Schedule Y, Line 1 - Massachusetts Employee Business Expense Deduction Worksheet, 2012 Form 1-NR/PY Instructions, Page 22 . The amount to be reported on this worksheet is for only those expenses that are directly related to taxable income reported on Form 1 NR/PY. If qualified, enter the amount from Line 8 of the worksheet on Form 1-NR/PY, Schedule Y, Line 1.
- Copy of U.S. Form 2106 - Employee Business Expenses, or U.S. Form 2106 EZ - Unreimbursed Employee Business Expenses with U.S. 1040, Schedule A if the deduction was taken federally;
- Amended U.S. Form 2106 or 2106 EZ with U.S. 1040, Schedule A if the deduction was not taken federally;
- Massachusetts Form 1 or 1-NR/PY, Schedule Y, Line 1 - Employee Business Expense Deduction Worksheet.
- M.G.L. Chapter 62, Sections 1(c) as amended by St. 1998, c. 175, s. 6
- M.G.L. Chapter 62, Sections 2(d)(1), 2(d)(2)
- TIR 05:16: The Effect of the Adoption of the Updated Internal Revenue Code on the Massachusetts Personal Income Tax (
- TIR 04-17: Massachusetts Tax Issues Associated with Same-Sex Marriages
- TIR 98-8: Massachusetts 1998 Reducing Income Taxes Act
- DD 86-14: Employee Job Seeking Expenses
- I.R.C. §§ 62(a)(2); 162(p); 274(m), (n)
- Military Family Relief Act of 2003 (Public Law 108-121)