General Rules

A deduction is allowed for amounts paid as a penalty for early withdrawal of funds from a time savings account or certificate of deposit provided that interest on such savings was reported as income on either the current or prior year returns.

Federal 10% penalty paid for early withdrawal of IRA and Keogh plans may not be claimed for this deduction.

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.

Where to Report on Original Tax Return; What to Enclose:

  • The amount reported on U.S. Form 1040, Line 30 must be entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 2.

Nonresidents and part-year residents may claim this deduction only if it is directly related to taxable income reported on Form 1 NR/PY.

Documentation to Submit with Abatement/Amended Tax Return:

To show that the deduction was taken federally

  • Copy of Form 1040, U.S. Individual Income Tax Return (Page 1), or Form 1040X , Amended U.S. Individual Income Tax Return

Massachusetts References:

  • M.G.L. Chapter 62, Section 2(d)(1)

Federal References

  • I.R.C. § 62(a)(9)