Numeric Glossary14

Alphabetical GlossaryABCDEFGHIKLMNOPQRSTUVW 


1

1231 property is depreciable property used in a trade or business and held for more than one year.

179 Deduction is an expensing deduction allowed for investments in depreciable business equipment in the year the property is placed in service.


4

401(a) Plan is a contributory profit sharing retirement savings plan in which the amount contributed to the employee's account is based on a percentage of the employer's profits.

401(k) Plan Qualified Cash or Deferred Arrangement is a particular plan feature of I.R.C. Section 401(a) qualified profit sharing, stock bonus or money purchase plans. A CODA allows an employee to choose between receiving cash or electing to have the cash placed in a qualified pension plan. A CODA can be either qualified or nonqualified. A Qualified CODA Is Commonly Referred to as a "401(K)" Plan. To be qualified, a CODA must satisfy the standard discrimination requirements, distribution limitation rules (such as the prohibition of distributions before age 59 1/2) and the nonforfeitability requirements.

403(b) Plan (Tax-Sheltered Annuity Plan (TSA) or Teacher's Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF) is a retirement plan for employees of universities, tax-exempt or non-profit organizations and local governments. Generally, a TSA or TIAA_CREF plan provides retirement benefits by purchasing annuity contracts for its participants.

457 Plan is a deferred compensation plan set up for public employees. The plan is maintained by state or local government and other tax-exempt organizations as defined under I.R.C. Section 457 that allow tax-free deferrals of salary.


A

AAT: See Ancillary Activity Test

Abatement: The reduction or cancellation of an assessed tax.

Abatement/Amended Return: Any person aggrieved by the assessment of a tax may apply in writing to the commissioner, on a form approved by him, for an abatement of such tax. The abatement application must be filed within the time prescribed by law. (Also see See Statute of Limitations)

Accounting Periods and Methods: Each taxpayer (business or individual) must figure taxable income on an annual accounting period called a tax year. The calendar year is the most common tax year. Other tax years are a fiscal year and a short tax year.

Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are:

  • the cash method in which a taxpayer generally reports income in the tax year it is received and deducts expenses in the tax year they are paid; and
  • the accrual method in which a taxpayer generally reports income in the tax year it is earned, regardless of when payment is received, and expenses are deducted in the tax year they are incurred, regardless of when payment is made.

Adjusted basis of property = the initial cost less depreciation, plus capital improvements.

Adjusted gross income: Massachusetts gross income reduced by business expenses and certain amounts claimed on Massachusetts Schedule Y, Lines 1-10, such as alimony paid or student loan interest.

Administrative Procedures (APs) are intended to assist taxpayers in dealing with the Massachusetts tax system as administered by the Department of Revenue. They attempt to set out in clear and concise fashion the steps that must be followed in dealing with a particular tax matter such as applying for an abatement. They are, however, descriptive and informational only. They do not have the force of law and are not to be confused with Regulations, Directives, Technical Information Releases or other official statements on Department policy.

After-tax Contribution = any contribution made to a designated pension plan, retirement account or any other account after taxes have been deducted from an individual's taxable income. 

Alimony is a payment to or for a spouse or former spouse under a divorce or separation agreement. Alimony is deductible by the payer and included in gross income by the collecting spouse or former spouse.

Allowable excess trade or business deductions = the excess of allowable Form 1 or Form 1-NR/PY deductions over Form 1 or Form 1-NR/PY income that may be deducted against other types of gross income that are effectively connected with the active conduct of a trade of business. The excess deductions may be claimed first from Schedule B income before any other Schedule B allowable deductions; then from Schedule D income after netting long-term gains and losses and after deducting excess short-term capital losses.

Amount realized (selling price) = the amount received upon the sale or exchange of property less the cost incurred to transfer the property. The amount received includes cash and the fair market value of any property or services received, plus any debt assumed by the buyer.

Ancillary Activity Test (AAT): If a nonresident's presence for business in Massachusetts is casual, isolated and inconsequential, then a nonresident does not have a trade or business, including any employment carried on in Massachusetts. A nonresident's presence for business in Massachusetts will ordinarily be considered casual, isolated and inconsequential if it is ancillary to the nonresident's primary business or employment duties performed at a base of operations outside of Massachusetts.

Annuity is a series of payments under a contract made at regular intervals over a period of more than one full year or life. An annuity can be either fixed (under which a person receives a definite amount) or variable (not fixed). A taxpayer can purchase an annuity contract alone or with the help of an employer. (Also see Retirement Plan.)

Appellate Tax Board (ATB): The Massachusetts Appellate Tax Board is a quasi-judicial state agency designed to conduct hearings and render decisions on appeals of all types of state and local taxes, including property tax (both real estate and personal property), corporate excise, individual income tax, sales and use tax, and automobile and other excises. The Appellate Tax Board is committed to maintaining an appeal process which is fair, understandable and accessible to all litigants,  and which resolves tax appeals in an expeditious fashion.

Apportionment of income:  When nonresidents earn or derive income from sources both within Massachusetts and elsewhere and no exact determination can be made of the amount of Massachusetts source income, an apportionment of income must be made to determine that amount. Apportionment methods include: 

  • employees compensated on an hourly, daily, weekly or monthly basis- gross income is multiplied by a fraction, the numerator of which is the number of days spent working in Massachusetts and the denominator of which is the total working days;
  • employees compensated on a mileage basis- gross income is multiplied by a fraction, the numerator of which is the total mileage traveled in Massachusetts and the denominator of which is the employee's total mileage upon which the employer computes total wages;
  • salespersons - gross income is multiplied by a fraction, the numerator of which is the amount of sales made within Massachusetts and the denominator of which is the amount of sales made everywhere.

APs: See Administrative Procedures

Assessment of tax by the commissioner: Taxes are deemed to be assessed at the amount shown as the tax due on any return filed and on any amendment, correction or supplement thereof, or for the amount properly due, whichever is less. The assessment occurs when the return is filed or required to be filed, whichever occurs later. If the commissioner determines from the verification of a return that the full amount of any tax has not been assessed, he may assess an additional tax due with interest, at any time within three years after the date the return was filed or the date it was required to be filed, whichever is later.

ATB: See Appellate Tax Board


B

Barcodes: DOR uses two types of barcodes on many of its forms. These barcodes allow the Department to identify documents, their source, and even capture the contents of entire tax returns by simply scanning them. There are 1-Dimensional (1-D) barcodes and 2-Dimensional (2-D) barcodes

Bond: See Debt Instrument

Business expenses are the costs of running a business that may be deducted from gross income. Business expenses are not included in the cost of goods sold or those that must be capitalized. They must be both ordinary (common and accepted in that particular field of business) and necessary (helpful and appropriate for the business) in order to be deductible from gross income.


C

Capital asset has the same meaning given in I.R.C. Section 1221...provided further that property used in a trade or business within the meaning of I.R.C. Section 1231 is treated as if such property were a "capital asset," without regard to the holding period in I.R.C. Section 1231.

Capital gain or loss = gain or loss on the sale or exchange of a capital asset determined using the Massachusetts adjusted basis: 

  • capital gain or loss is long-term if the property was held for more than one year. Long-term capital gains, except gains on collectibles and pre-1996 installment sales, are taxed at 5.3% on Schedule D. Gains from collectibles and pre-1996 installment sales are taxed at the 12% rate on Schedule B.
  • capital gain or loss is short-term if the property was held for one year or less. Short-term gains and gains from collectibles are taxed at 12% on Massachusetts Schedule B.

Capital gain distributions are paid by mutual funds from their net realized long-term capital gains. The Form 1099-DIV (box 2a) or the fund's statement indicates the amount to be reported as a capital gain distribution. Capital gain distributions are taxed as long-term capital gains regardless of how long an individual has owned the shares in the mutual fund.

Capital improvements = the cost of improvements to property if they increase the value of property, lengthen its life or adapt it to a different use. Examples: adding a new room, new plumbing or wiring, installing a new roof, etc.

Casual, isolated and inconsequential presence for business in Massachusetts: If a nonresident's presence for business in Massachusetts is casual, isolated and inconsequential, then a nonresident does not have a trade or business, including any employment carried on in Massachusetts. A nonresident's presence for business in Massachusetts will ordinarily be considered casual, isolated and inconsequential if it is ancillary to the nonresident's primary business or employment duties performed at a base of operations outside of Massachusetts.

Catch-up Contributions: After 2001, individuals who are at least 50 years of age by the end of the tax year are permitted to make "catch-up" contributions to a variety of employer-sponsored defined contribution plans (e.g. 401(k), SEP, SIMPLE, 403(b) and 457 plans). Catch-up contributions to IRAs (traditional and Roth) are also permitted.

Certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the U.S. by banks, thrift institutions and credit unions. CDs are similar to savings accounts in that they are insured and thus virtually risk-free. They are different from savings accounts in that the CD has a specific, fixed term and usually a fixed rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest. 

CGS (Cost of Goods Sold) = the amount that can be deducted from gross receipts when a taxpayer makes or buys goods to sell. This is calculated on Schedule C-1, Cost of Goods Sold and/or Operations on the Schedule C.

Circuit Breaker Credit is another term for the Real Estate Tax Credit for Persons Age 65 and Older.

CMR: See Regulations

CODA 401(k) Plan, Qualified Cash or Deferred Arrangement is a particular plan feature of I.R.C. Section 401(a) qualified profit sharing, stock bonus or money purchase plans. A CODA allows an employee to choose between receiving cash or electing to have the cash placed in a qualified pension plan. A CODA can be either qualified or nonqualified. A Qualified CODA Is Commonly Referred to as a "401(K)" Plan. To be qualified, a CODA must satisfy the standard discrimination requirements, distribution limitation rules (such as the prohibition of distributions before age 59 1/2) and the nonforfeitability requirements.

Code is the Internal Revenue Code of the United States, as amended on January 1, 2005, as it applies to the Massachusetts personal income tax under the provisions of M.G.L. Chapter 62. However, Massachusetts adopts the current Code for certain pensions and trade or business deductions. Code sections are generally stated as I.R.C. Section. 

  • 2005 Law Change:
    The Massachusetts Legislature recently enacted Chapter 163 of the Acts of 2005 which incorporated into Massachusetts personal income tax law the Internal Revenue Code (the "Code") as amended and in effect on January 1, 2005. Massachusetts previously used the Code as amended and in effect on January 1, 1998. As a result of Code update, Massachusetts has adopted many of the federal tax law changes that have been enacted by Congress in the past seven years, including the American Jobs Creation Act of 2004, Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and the Job Creation and Worker Assistance Act of 2002.
As a general rule, Massachusetts will not adopt any federal tax law changes incorporated into the Code after January 1, 2005. However, certain specific provisions of the personal income tax automatically adopt the current Code. These include (i) Roth IRAs, (ii) Education IRAs, (iii) the exclusion for gain on the sale of a principal residence, (iv) trade or business expenses, (v) travel expenses, (vi) meals and entertainment expenses, (vii) the maximum deferral amount of government employees' deferred compensation plans, (viii) deduction for health insurance costs of self-employed, (ix) medical and dental expenses and (x) annuities.
  • 2002 Law Change:
    Under the Act, Massachusetts retains the reference in Chapter 62 to the 1998 Code for most income tax provisions, but adopts the current Code for the treatment of qualified plans and certain other tax-favored retirement plans. St. 2002, c. 186, s. 1, amending G.L. c. 62, s. 1. Effective for tax years beginning on or after January 1, 2002, the Act conforms the Massachusetts personal income tax to the following sections of the Code as amended and in effect for the taxable year ("current Code"): IRC §§ 62(a)(1),72, 274(m) and (n), 401 to 420 inclusive (but excluding §§ 402A and 408q), 457, 529, 530, 3401 and 3405.

Collectible is any capital asset as defined on I.R.C. Section 408 (m), as amended and in effect for the taxable year, which includes works of art, rugs, antiques, metals, gems, alcoholic beverages, certain coins and any other items treated as collectibles for federal tax purposes.

Contributions to a pension or retirement fund are amounts paid into funds by either employees or by their employers on their behalf. Contributions usually have limits based on participants' compensation. Individuals with IRAs also make contributions.

Corporate trust is any partnership, association or trust, the beneficial interest of which is represented by transferable shares.

Cost basis of property = the amount paid in cash, debt obligations, or other property. Cost also includes amounts paid for miscellaneous items such as excise taxes, installation and testing charges, freight charges to obtain the property, etc.

Covenant not to Compete or a non-competition agreement is a promise by an employee not to compete with his or her employer for a specified time in a particular place. The agreement may cover such actions, among others, as opening a competing business or using customer information for business leads. A covenant not to compete may be a clause in an employment agreement or a separate contract standing by itself.

Coverdell Education Savings Accounts (CESA) were created as in 1998 is a tax-favored vehicle to help low and middle income taxpayers save for qualified higher education as well as elementary and secondary education expenses. Earnings accumulate tax-free on CESA contributions, and distributions of income are tax free to the extent that they are used to pay the beneficiaries' qualified higher education expenses during the year in which the distribution is made. (Previously called Education Individual Retirement Account).

Credit: A dollar-for-dollar reduction in the tax. There are two kinds of credits: nonrefundable, a credit that can be deducted directly from taxes owed, but not below zero; and a refundable credit, a credit that is allowed even if a taxpayer does not owe any taxes, nor has any income taxes withheld from his or her pay. Examples of refundable credits are the Earned Income Credit (EIC) and the Circuit Breaker Credit. 

  • Nonrefundable credit: tax = $300; credit calculated = $500. The credit can reduce the tax of $300 to $0 but the difference of ($200) will not be refunded to the taxpayer. It may be carried over to a future year.
  • Refundable credit: tax = $450; credit calculated = $750. The credit can reduce the tax of $450 to $0 and the difference of ($300) will be refunded to the taxpayer.

Current gain or loss is gain or loss from a sale of property that is realized in the current taxable year.


D

DDs: See DOR Directives

Debt Instrument is an obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include: notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower. Debt instruments are issued by corporations, institutions, governments or government agencies to borrow money to help finance current operations and new acquisitions of property, plant or equipment Most debt instruments offer fixed interest payments periodically for a fixed period of time.

 Deduction: Personal or business expenses incurred that reduce income subject to tax.

Deferred compensation is a portion of earnings withheld by an employer or put into a retirement plan for distribution to the employee at a later date. If certain requirements are met, the deferred amount is not taxable until actually paid.

Defined Benefit Plan is a retirement plan that pays fixed benefits based on actuarial projections.

Defined Contribution Plan is a retirement plan that pays benefits based on contributions to individual accounts, plus accumulated earnings. Contributions are generally based on percentage of salary or earned income.

Dependent:  A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption.

Dependent care benefits are amounts paid or incurred by an employer to any employee for care assistance of the employee's dependents.

Depreciation: If property is used to produce income, such as rents, the owner can recover some or all of the cost of the property through tax deductions. This is done by "depreciating" the property, i.e., reducing a portion of the cost of the property each year. Depreciation taken reduces the basis in the property. (Also see TIR 02-11 .)

Designated Roth Account is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans that permit such plans to accept designated Roth contributions and certain rollovers. It is a separate account that holds designated Roth contributions. If a plan adopts this feature, employees can designate some or all of their elective contributions (also referred to as elective deferrals) as designated Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions.

Disabled Dependent: For purposes of the general dependent deduction, the term "disabled dependent" is defined as an individual who is permanently and totally disabled, which means the person is unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than 12 months.

Distributions from a pension or retirement fund are amounts paid out of the fund to employees who have separated from their employment. Distributions usually have time limits based on age and definition of plan. Individuals with IRAs also receive distributions.

Dividend is any item of federal gross income treated as a dividend under the Code. Generally, it is a distribution made by a corporation to its shareholders of company earnings and profits. Note: ordinary dividend has the same meaning as dividend.

Domicile or legal residence is determined by all of the facts and circumstances. Whether or not Massachusetts will be considered an individual's domicile depends upon all the facts and circumstances of the case, including the good faith of the individual.

DOR Directives (DDs) concern current Department policy, practice or interpretation, and provide details or supplementary information, clarify ambiguities, resolve inconsistencies or explain and elaborate on issues. A directive states the official policy of the DOR, will be used as precedent unless or until revoked or modified, and may be relied on by taxpayers in situations where the facts, circumstances and issues presented are substantially similar to those set forth in the Directives.


E

Earned Income Credit:  A refundable credit paid to low-income workers by IRS and DOR, even if they do not owe any taxes nor have any income taxes withheld from their pay. To receive the credit, a taxpayer must file a tax return and claim the credit.

Education Savings Account, Coverdell (CESA) was created in 1998 and is a tax-favored vehicle to help low and middle income taxpayers save for qualified higher education as well as elementary and secondary education expenses. Earnings accumulate tax-free on CESA contributions, and distributions of income are tax free to the extent that they are used to pay the beneficiaries' qualified higher education expenses during the year in which the distribution is made. (Previously called Education Individual Retirement Account).

EFIN - Electronic Filing Identification Number

Electronic filing (E-File) : The transmission of tax information directly to DOR using telephones or computers. Electronic filing options include (1) Online using independent software and service providers, or (2) using a tax professional (Also see Electronic Return Originators below).

Electronic Return Originators (ERO) : An authorized DOR e-file provider that originates the electronic submission of an income tax return to DOR. EROs may originate the electronic submission of income tax returns they either prepared or collected from taxpayers. Some EROs charge a fee for submitting returns electronically. (See Publication M-1345 pdf format of Tax Year 2013 Publication Publication M-1345 )

Employee (Fringe) Benefits can be in the form of cash or non-cash compensation. Typically, a fringe benefit is any property or service that employees receive from their employers in lieu of, or in addition to, regular taxable wages. Even though the IRS does not define a "fringe benefit", the regulations do contain several examples which include: employer-provided automobile; adoption assistance; child or dependant care assistance; moving expense reimbursements, accident and health plans, group-term life insurance, etc. For example, an employer provides an employee with a fringe benefit when he/she allows the employee to use a business vehicle to commute to and from work.

Employee Retirement Plan: Employers who want to provide retirement benefits for employees customarily establish a pension, profit-sharing or stock bonus plan that qualifies for preferential tax treatment. This includes:

  • tax exemption for the fund established to provide benefits;
  • deductions by the employer for contributions made to the fund;
  • tax deferral for the employee for the employer's contributions and earnings; and
  • in some instances, favorable tax treatment when benefits are paid.

Entity theory:

Federal S Corp loss - Flow through   Mass S corp loss - Entity  
Federal S corp income on 1120$90  Mass S corp income on 3F $90
Federal S corp income on 1040$90  Mass 3F income on Form 1 $90
    Mass addback on Form 1 ($90)
    Mass gross income on Form 1 $0

Estimated Tax: Taxpayers are required to pay any tax due on taxable income which is not subject to withholding. This is to ensure that taxpayers are able to meet the statutory requirement that taxes due are paid periodically as income is received during the year.

Excess Exemptions = the excess of allowable exemptions over Form 1, Line 10 or Form 1-NR/PY, Line 12 income that may be deducted against Schedule B and D income.

Excess trade or business deductions = the excess of allowable Form 1 or Form 1-NR/PY deductions over Form 1 or Form 1-NR/PY income that may be deducted against other types of gross income that are effectively connected with the active conduct of a trade of business. The excess deductions may be claimed first from Schedule B income before any other Schedule B allowable deductions; then from Schedule D income after netting long-term gains and losses and after deducting excess short-term capital losses.

Excludible Income : items of income that are specifically excluded from income by the I.R.C. Sections 101 through 139.

  • Compensation, Injury and Sickness Benefits: death benefits; injury benefits; military fringe benefits; sick pay, workers compensation, etc.
  • Employee (Fringe) Benefits: can be in the form of cash or non-cash compensation. Typically, a fringe benefit is any property or service that employees receive from their employers in lieu of, or in addition to, regular taxable wages including: employer-provided automobile; adoption assistance; child or dependant care assistance; moving expense reimbursements, etc.
  • Other Items Specifically Excluded: gifts and inheritance, etc.

Exemption: The amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are several types of exemptions: personal, dependents, age 65 or older, blindness, medical/dental and adoption. Each exemption reduces the income subject to tax. The exemption amount is a fixed amount that may change from year to year.


F

Fair market value = the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts.

Federal adjusted gross income means federal gross income less certain deductions allowed under I.R.C. Section 62.

Federal Change: If, as a result of a change by the federal government in a taxpayer's federal taxable income, a taxpayer believes that a lesser tax was due the Commonwealth than was previously paid, the taxpayer may apply to the Commissioner of Revenue for an abatement within one (1) year of the date of notice of the final determination by the federal government. The one year rule also applies to a final determination of a change made by the IRS, which was initiated by the filing of an amended federal return by the taxpayer.

If, as a result of a change by the federal government, the federal taxable income of a taxpayer is greater than the taxable income as originally reported, such final determination should be reported to DOR within one year (three months for corporate excise tax) from taxpayer's receipt of notice of such final federal determination.

Federal Deductions: Business expenses incurred that reduce gross income to arrive at adjusted gross income. Most of these deductions are found on US 1040, Lines 23 - 36.

Federal Deductions Allowable on Mass Form 1: Federal business expenses claimed on Massachusetts Schedule Y, Lines 1 - 10, such as alimony paid; moving expenses; student loan interest deduction, etc.

Federal gross income is income from all sources, except for those items specifically excluded by the I.R.C. Sections 101 through 139.

Federal Insurance Contributions Act (FICA) Tax is an amount paid by individuals during the period in which they earn wages for purposes of providing them with benefits when they retire. Social Security benefits are made available to retired workers, their spouses and their dependents as well as to disabled workers, their spouses and their dependents. Also known as the Social Security tax.

Federal National Mortgage Association (FNMA): A corporation created by Congress to facilitate the secondary mortgage market. Popularly known as Fannie Mae.

Filing Requirement: Massachusetts law determines the filing requirement thresholds for all residents, nonresidents and part-year residents. To determine one's filing requirement, total gross income includes income from all sources, both in and out of Massachusetts.

Filing Status: For federal purposes, filing status determines the rate at which income is taxed; for Massachusetts purposes, filing status determines the personal exemption amount allowed. For federal purposes there are five filing statuses: single, married filing a joint return, married filing a separate return, head of household, and qualifying widow(er) with dependent child. Massachusetts offers all but the qualifying widow(er) with dependent child. Generally, someone claiming this status federally will qualify for head of household for Massachusetts.

Flow through theory:

Federal S Corp loss - Flow through   Mass S corp loss - Entity  
Federal S corp loss on 1120($95)  Mass S corp loss on 3F ($95)
Federal S corp loss on 1040($95)  Mass 3F loss on Form 1 ($95)
    Mass addback on Form 1 $95
    Mass gross income on Form 1 $0


Fringe Benefits can be in the form of cash or non-cash compensation. Typically, a fringe benefit is any property or service that employees receive from their employers in lieu of, or in addition to, regular taxable wages. Even though the IRS does not define a "fringe benefit", the regulations do contain several examples which include: employer-provided automobile; adoption assistance; child or dependant care assistance; moving expense reimbursements, accident and health plans, group-term life insurance, etc. For example, an employer provides an employee with a fringe benefit when he/she allows the employee to use a business vehicle to commute to and from work. 


G

Gain or loss: If the amount realized from a sale of property is more than the adjusted basis of the property transferred, the difference is a gain; if the adjusted basis of the property transferred is more than the amount realized, the difference is a loss.

Gambling as a profession: In the context of professional gambling, determining whether a taxpayer is engaged in a trade or business "requires an examination of the facts in each case. If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes.

Government bond interest income is income earned from bonds issued by either the federal government, states, cities, or counties and the District of Columbia. For Massachusetts purposes, interest earned from bonds issued by the federal government and by Massachusetts (state, city or county) is not subject to income tax.

Government National Mortgage Association (GNMAA): A Government corporation, part of the Department of Housing and Urban Development, that subsidizes the purchase of FHA and VA mortgages. GNMA, popularly known as Ginnie Mae, also guarantees securities issued by private institutions and backed by pools of mortgages. 

Grantor: The individual who makes a grant of assets to create a trust. Also referred to as: the settler, donor or trustor

Gross income: all income from whatever source derived including (but not limited to) the following items: compensation for services, wages, pensions, business income, rents, royalties, dividends, interest, alimony, annuities, etc. Gross income does not include welfare benefits.

Gross profit = gross receipts less cost of goods sold.

Gross receipts = all income received from a business that is not excluded by law. Business income includes cash, checks and credit card charges received and the barter of property or services (fair market value).

Gross receipts-based taxes like the GRT, GMT and CAT are each taxes imposed for the privilege of doing business in a state. These taxes are not based on income and are due whether a business is profitable or not. Therefore, these taxes are not in the nature of net income taxes imposed on taxpayers, either directly or by imposition on pass-through entities in which the taxpayers are members.


H

Health Insurance, Penalty for Failure to Purchase: Individuals who are deemed able to afford health insurance but fail to comply are subject to penalties for each month that they are uninsured in the tax year. The penalties, which will be imposed through the individual's personal income tax return, shall not exceed 50% of the minimum monthly insurance premium for which an individual would have qualified through the Commonwealth Health Insurance Connector Authority (the Connector).

Health Savings Accounts (HSAs) are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

Holding period of capital assets sold or exchanged: For purposes of determining the length of time a capital asset is held, the Massachusetts holding period is generally the same as the holding period determined for federal tax purposes. However, for Massachusetts purposes, a capital asset acquired before January 1, 1996, is deemed to have been acquired on the later of (i) January 1, 1995 or (ii) the date of actual acquisition. 

  • capital gain or loss is long-term if the property was held for more than one year. Long-term capital gains, except gains on collectibles and pre-1996 installment sales, are taxed at 5.3% on Schedule D. Gains from collectibles and pre-1996 installment sales are taxed at the 12% rate on Schedule B.
  • capital gain or loss is short-term if the property was held for one year or less. Short-term gains and gains from collectibles are taxed at 12% on Massachusetts Schedule B.

I

Income taxes: For individuals, taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends and capital gains) are levied by both the IRS and DOR.

Individual Retirement Account (IRA) is a retirement plan to which an individual may contribute a maximum amount annually. For joint filers, each may contribute up to the maximum amount allowable. Earnings accumulate tax-free on IRA contributions and depending on the type of IRA, distributions may or may not be taxable. Types of IRAs: Traditional and Roth .

Installment sales: Some sales are made under arrangements that provide for part or all of the selling price to be paid in more than one (1) tax year. If the seller finances the buyer's purchase of investment property, instead of having the buyer obtain a loan or mortgage from a bank, the seller has an installment sale. Generally each payment consists of both principal and interest. The seller recognizes gain on an installment sale as he or she receives the payments; the interest is reported separately.

Interest Income has the same meaning as in I.R.C. Section 163 including all amounts treated as interest by virtue of the operation of other I.R.C. sections.

Internal Revenue Code (I.R.C.) is the Internal Revenue Code of the United States, as amended on January 1, 2005, as it applies to the Massachusetts personal income tax under the provisions of M.G.L. Chapter 62. However, Massachusetts now adopts the current Code for certain pensions and trade or business deductions. Code sections are generally stated as I.R.C. Section.

Irrevocable Trust: A trust that cannot be annulled by the grantor, the person who originally set up the trust.


K

Keogh Plans (also called HR-10 (Plans) are retirement plans that can only be set up by sole proprietors or partnerships (but not partners). The retirement plans are for those who earn self-employed income from personal services and have net earnings. If there is a net loss from self-employment, no contribution for oneself can be made for the year. Net earnings must be from personal services, not merely from investment.


L

Letter Rulings (LRs) are advisory rulings, prospective in nature, issued by the Commissioner of Revenue in response to letters from individual taxpayers on specific issues relating to the interpretation or application of the Massachusetts tax laws.

Limited Income Credit (LIC) : Taxpayers who are required to file a Massachusetts return but whose Massachusetts Adjusted Gross Income (Massachusetts AGI) does not exceed certain thresholds may qualify for a Limited Income Credit (LIC).

Long-term capital gain or loss = gain or loss on the sale or exchange of a capital asset held for more than one year. For transactions completed before May 1, 2003, gains, except for gains from collectibles and pre-1996 installment sales, are taxed according to their holding periods, or class, at varying rates on Massachusetts Schedule D. Gains from collectibles and pre-1996 installment sales are taxed at the 12% rate on Schedule B. For transactions completed on or after May 1, 2003, long-term capital gains, except gains on collectibles and pre-1996 installment sales, are taxed at 5.3% on Schedule D.

LRs: See Letter Rulings

Lump sum distributions are payments made within a single tax year of the entire balance of retirement funds to a participant of a qualified retirement plan. The lump sum distribution is a result of either retirement, separation from service, reaching age 59 1/2, death, or, in the case of self-employed person, disability or reaching age 59 1/2.


M

Married taxpayer: The determination of whether the taxpayer is married is made at the close of his or her taxable year, except that if his or her spouse dies during the taxable year, the determination is made as of the time of death.

Massachusetts adjusted gross income = Massachusetts gross income less certain allowable federal deductions under I.R.C. Sections 62 and 404 such as alimony paid, moving expenses, student loan interest paid, etc. No Tax Status and the Limited Income Credit are based on Massachusetts adjusted gross income, as well as the College Tuition deduction.

Massachusetts General Laws (M.G.L.): DOR administers and enforces tax statutes in the Commonwealth under the Massachusetts General Laws. In addition, DOR's Rulings and Regulations Bureau issues documents that explain Massachusetts tax laws and related court decisions, clarify the Department's position on a variety of tax issues, and detail certain Departmental procedures.

Massachusetts gross income = federal gross income, with certain modifications. Certain items are added/deducted to federal gross income to arrive at Massachusetts gross income. Filing requirements are based on Massachusetts gross income. Massachusetts gross income includes income from all sources, both in and out of Massachusetts. Massachusetts gross income is divided into three parts.  

  • Massachusetts Form 1, Line 10 or 1-NR/PY, Line 12 income (Part B income) is Massachusetts gross income not included in Schedule B or D which includes wages, salaries, pensions, business income, rental income, alimony and winnings, etc.;
  • Massachusetts Schedule B (Part A income) is total interest, dividends and certain capital gains;
  • Massachusetts Schedule D (Part C income) is long-term capital gain income.

Massachusetts gross income for a nonresident = Massachusetts source income, e.g. income derived from sources within Massachusetts.

Massachusetts gross income from all sources for a nonresident is Massachusetts gross income plus non-Massachusetts source income,  or income that would be included if a taxpayer were a full year Massachusetts resident. 

Massachusetts holding period of capital assets sold or exchanged: For purposes of determining the length of time a capital asset is held, the Massachusetts holding period is generally the same as the holding period determined for federal tax purposes. However, for Massachusetts purposes, a capital asset acquired before January 1, 1996, is deemed to have been acquired on the later of (i) January 1, 1995 or (ii) the date of actual acquisition: 

  • capital gain or loss is long-term if the property was held for more than one year. Long-term capital gains, except gains on collectibles and pre-1996 installment sales, are taxed at 5.3% on Schedule D. Gains from collectibles and pre-1996 installment sales are taxed at the 12% rate on Schedule B.
  • capital gain or loss is short-term if the property was held for one year or less. Short-term gains and gains from collectibles are taxed at 12% on Massachusetts Schedule B.

Massachusetts Optional Retirement Program (ORP) is a defined contribution retirement plan for certain employees of the Commonwealth's institutions of public higher education established by G.L. c. 15A, section 40. The Department of Higher Education is the Plan Administrator.

Massachusetts previously taxed contributions are contributions for which a Massachusetts deduction was not allowed at the time an individual contributed to certain retirement savings accounts such as an IRA account.

Massachusetts source income is income taxable to a nonresident. It includes items of gross income derived from or effectively connected with: 

  • any trade of business, including any employment carried on by the taxpayer in Massachusetts;
  • the participation in any lottery or wagering transaction in Massachusetts; or
  • the ownership of any interest in real or tangible personal property located in Massachusetts.

Massachusetts Taxable Income is Massachusetts adjusted gross income less specific Massachusetts deductions found on Form 1, lines 11 - 14 (Form 1-NR/PY, Lines 15 - 18) and Schedule Y, Lines 11 – 16 as well as the deduction for exemptions.  Taxable income is the figure used to determine actual tax due.

Medicare tax is an amount paid by individuals during the period in which they earn wages for purposes of providing them with benefits when they retire. Medical benefits are made available to certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65. Medicare tax is also deducted from social security benefits.

M.G.L.: See Massachusetts General Laws

Money market fund is a mutual fund that tries to increase current income available to shareholders by buying short-term market investments. Money market funds pay dividends and should not be confused with bank money market accounts that pay interest.

Mutual fund is a regulated investment company generally created by pooling funds of investors to allow them to take advantage of a diversity of investments and professional management. (Also see Capital Gain Distributions.)


N

Net profit or loss = gross profit less business expenses. If the expenses are less than income, the difference is net profit. If the expenses are more than income, the difference is a net loss.

No Tax Status (NTS): If a taxpayer's Massachusetts Adjusted Gross Income (Massachusetts AGI) does not exceed certain thresholds for the taxable year, he or she qualifies for No Tax Status (NTS) and is not required to pay any Massachusetts income tax. A taxpayer qualifying for NTS must still file a tax return.

Nonqualified employee plan is an employer's retirement plan that does not meet the qualification requirements for tax-benefited employee plans at Internal Revenue Code Section 401. Generally, a nonqualified pension does not qualify for most of the tax benefits of a qualified plan; for example, it is taxable when the contribution is made or vested. Many non-qualified plans (although not all) are taxable to nonresidents.

Nonrefundable Credit: A dollar-for-dollar reduction in the tax that can be deducted directly from taxes owed, but not below zero.

  • tax = $300; credit calculated = $500. The credit can reduce the tax of $300 to $0 but the difference of ($200) will not be refunded to the taxpayer. It may be carried over to a future year.

Nonresident is any natural person who is not a resident or inhabitant of Massachusetts.

Nonresident Massachusetts gross income = Massachusetts source income, e.g. income derived from sources within Massachusetts.

Nonresident Massachusetts gross income from all sources is Massachusetts gross income plus non-Massachusetts source income,  or income that would be included if a taxpayer were a full year Massachusetts resident.

Nonresident Alien: For federal tax purposes, an alien is an individual who is not a U.S. citizen. Aliens are classified as nonresident aliens and as resident aliens. Individual are considered nonresident aliens if they do not qualify as resident aliens. Nonresident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States. Nonresident aliens file Form 1040 NR, U. S. Nonresident Alien Income Tax Return. 

NTS: See No Tax Status


O

Obligations: See Debt Instrument

Online filing is a method of filing electronically using approved commercial software or web-enabled applications. Massachusetts taxpayers have the option to prepare and file their tax returns online using independent software and service providers. Online Filing providers may allow users to file all related Massachusetts tax schedules as well as federal tax forms.

Ordinary gain or loss = gain or loss from the sale or exchange of assets other than capital assets. Massachusetts does not allow the special federal provisions stated below.

Ordinary loss treatment, special federal provisions = favorable treatment of gains and losses from the sale or exchange of certain assets; the gains are given capital asset treatment, and the losses are given ordinary treatment. These provisions are for federal purposes only.


P

Paid Preparer Authorization: May the Department of Revenue discuss this return with the preparer shown here? __Yes
A taxpayer should fill in the "Yes" oval on the bottom of the tax returns if he or she wants to authorize DOR to discuss the tax return with the paid preparer who signed the returns without submitting a signed POA. This authorization does not bind the taxpayer to the preparer to represent him/her for other DOR issues.

Part B income consists of income items included in Form 1, Line 10 or Form 1-NR/PY, Line 12. It includes: wages; taxable pensions and annuities; Massachusetts bank interest; business/profession or farm income/loss; rent, royalty, REMIC, partnership, S corp and trust income/loss; unemployment compensation; lottery and gambling winnings; alimony; taxable IRA/Keogh distributions; fees and other types of income, etc.

Part A income consists of income items included on Schedule B. It includes: dividends; interest from sources other than Massachusetts banks (interest from U.S. and Massachusetts obligations excluded); short-term capital gains and losses; long-term capital gains on collectibles and pre-1996 installment sales.

Part C income consists of income items included on Schedule D. It includes all long-term capital gains and losses other than long-term capital gains from on collectibles and pre-1996 installment sales.

Part-year resident is a person who either moves to Massachusetts during the year and becomes a resident, or a person who terminates his or her Massachusetts residency during the year and establishes a residence outside the Commonwealth.

Part-year resident Massachusetts gross income = income earned during the period of time a Massachusetts resident.

Passive Activities

  • income and losses from trade or business activities, including sole proprietorships, farms, partnerships, S-corporations, and limited liability companies in which individuals do not materially participate under the rules of I.R.C. § 469(h) during the year; and
  • rental activities including equipment leasing and rental real estate, even if individuals materially participate under the rules of I.R.C. § 469(h) in them during the year, unless they are real estate professionals.

Active Participation Defined:
Active participation is a less stringent standard than material participation. For example, an individual may be treated as actively participating if he or she makes management decisions in a significant and bona fide sense. Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.

Material Participation Defined:
If material participation is shown, the activity will not be subject to the passive loss restrictions. IRS regulations specify seven tests to determine whether or not the taxpayer is involved in the operation of the activity on a regular, continuous and substantial basis. 


Penalties: The General Laws of Massachusetts provide for the imposition of penalties when taxpayers fail to comply with Massachusetts' tax laws. The General Laws also permit the Commissioner of Revenue to waive or abate such penalties under certain circumstances. Penalties are meant to provide taxpayers with an incentive to comply voluntarily with their tax obligations.

Pension: Also see Retirement Plan.

Pension contributions are amounts paid into funds by either employees or by their employers on their behalf. Individuals with IRAs also make contributions.

Pension distributions are payments to employees from an employer-funded retirement plan for past services. Individuals with IRAs also receive distributions.

Permanent place of abode: Whether a person maintains a permanent place of abode in Massachusetts is a factual determination. DOR interprets a "permanent place of abode" to mean a dwelling place continually maintained by a person, whether or not owned by such person, and will include a dwelling place owned or leased by a person's spouse.

PIN - Personal Identification Number that allows taxpayers to "sign" their tax returns electronically. The PIN, a four-digit number, ensures that electronically submitted tax returns are authentic. Most taxpayers qualify to use a PIN.

Power of Attorney: To protect the confidentiality of tax records, Massachusetts law generally prohibits DOR from disclosing tax return information to anyone other than taxpayers or their representatives. Generally, DOR can only release tax information to representatives if they provide valid powers of attorney.

Pretax Contribution = any contribution made to a designated pension plan, retirement account or other tax deferred investment vehicle where the contribution is made before federal and/or municipal taxes are deducted.

Previously taxed contributions, Massachusetts, are contributions for which a Massachusetts deduction was not allowed at the time an individual contributed to certain retirement savings accounts such as an IRA account.

Prior year gain or loss is a sale of property that was realized in a prior taxable year.

Profit sharing plan is a contribution plan under which the amount contributed to the employee's account is based on a percentage of the employer's profits.

Prorated personal exemption is the amount allowed to a resident multiplied by the Deduction and Exemption Ratio, Line 14g, the numerator of which is Massachusetts gross income (from sources within Massachusetts) and the denominator of which is Massachusetts gross income from all sources, as if the taxpayer were a full year resident.

PTIN - IRS-issued Preparer Tax Identification Number in lieu of a Social Security number.

Public Written Statements: DOR administers and enforces tax statutes in the Commonwealth under the Massachusetts General Laws. In addition, DOR's Rulings and Regulations Bureau issues documents that explain Massachusetts tax laws and related court decisions, clarify the Department's position on a variety of tax issues, and details certain Departmental procedures.


Q

Qualified employee plan is a retirement plan that meets tax law tests and allows for tax deferment and tax-free accumulation of income until benefits are withdrawn. Qualified plans include pension; profit sharing; stock bonus; employee stock ownership; Keogh Plans; and IRAs.


R

Reasonable Cause: The late filing and late payment penalties set forth in G. L. c. 62C, s. 33(a) - (c) may be waived or abated if a taxpayer demonstrates that the failure to file or pay resulted from reasonable cause and not willful neglect. To meet this standard, a taxpayer must establish that care was exercised to the same degree that an ordinary taxpayer in the same position would have exercised.

Refund is the amount of money IRS or DOR owes to taxpayers when their total tax payments exceed their total tax liabilities.

Refundable Credit: A credit that is allowed even if a taxpayer does not owe any taxes nor has any income taxes withheld from his or her pay. Examples of refundable credits are the Earned Income Credit (EIC) and the Circuit Breaker Credit.

  • tax = $450; credit calculated = $750. The credit can reduce the tax of $450 to $0 and the difference of ($300) will be refunded to the taxpayer.

Regulations (830 CMR): Codified in Chapter 830 of the Code of Massachusetts Regulations further interpret the statutory provisions governing taxation and set forth Department procedures.

Residency Status: an individual is a:

  • full-year resident if: (1) his or her legal residence (domicile) is in Massachusetts for the entire taxable year; or (2) his or her legal residence (domicile) is not in Massachusetts for the entire taxable year but who:
    1. maintains a permanent place of abode in Massachusetts; and
    2. spends in the aggregate more than 183 days of the taxable year in Massachusetts, including days spent partially in and partially out of Massachusetts.
  • part-year resident if he or she either: (1) moves to Massachusetts during the taxable year and becomes a resident; or (2) terminates his or her status as a Massachusetts resident during the taxable year and establishes a residence outside the state.
  • nonresident if he or she is not a resident or inhabitant of Massachusetts as defined above.

Resident or inhabitant:  

  • any natural person domiciled in the Commonwealth; or
  • any natural person not domiciled in the Commonwealth but who maintains a permanent place of abode in the Commonwealth and spends more than 183 days, including partial days, in the taxable year in the Commonwealth.

Resident alien: For federal tax purposes, an alien is an individual who is not a U.S. citizen. Aliens are classified as nonresident aliens and as resident aliens. Individuals are considered resident aliens if they meet either the Green Card Test or the Substantial Presence Test. Resident aliens are generally taxed on their worldwide income in the same manner as U.S. citizens. Resident aliens file Form 1040, U.S. Individual Income Tax Return.

Retirement Account, Individual (IRA) is a retirement plan to which an individual may contribute a maximum amount annually. For joint filers, each may contribute up to the maximum amount allowable. Earnings accumulate tax-free on IRA contributions and depending on the type of IRA, distributions may or may not be taxable. Types of IRAs: Traditional and Roth.

Retirement Plan, Employee: Employers who want to provide retirement benefits for employees customarily establish a pension, profit-sharing or stock bonus plan that qualifies for preferential tax treatment. This includes:

  • tax exemption for the fund established to provide benefits;
  • deductions by the employer for contributions made to the fund;
  • tax deferral for the employee for the employer's contributions and earnings; and
  • in some instances, favorable tax treatment of distributions.

Returns and allowances are amounts that are deducted which consist of merchandise that was included in gross receipts that has been returned and/or damaged when a taxpayer makes or buys goods to sell. Returns include cash or credit the business makes to customers and other allowances off the actual sales price.

Revocable Trust: A trust in which the grantor retains the right to revoke, and reclaim property that had been placed in the trust.

Rollover is a tax-free reinvestment of a distribution from a qualified retirement plan into an IRA or other qualified plan within 60 days.

Roth IRA, Individual Retirement Account created in 1998, is a retirement plan to which an individual may contribute a maximum amount annually. For joint filers, each may contribute up to the maximum amount allowable. It is a nondeductible contributory IRA that allows for tax-free accumulation of income as well as for tax-free distributions of income if certain conditions are met.

Roth Account, Designed is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans that permit such plans to accept designated Roth contributions and certain rollovers. It is a separate account that holds designated Roth contributions. If a plan adopts this feature, employees can designate some or all of their elective contributions (also referred to as elective deferrals) as designated Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions.


S

Salary reduction agreement: The taxpayer agrees to allow the company to contribute to a retirement plan trust account on his or her behalf if the taxpayer foregoes a salary increase.

Salary reduction deferral: The taxpayer makes elective contributions to a retirement plan out of his or her salary and the contributions and the buildup of earnings in the plan are not pre-taxed up to a specific limit based on the type of plan.

Sale of Exchange: Any disposition that is a sale or exchange for federal tax purposes within the meaning of Code section 1222, 1231 or other relevant Code provision, or any disposition that is a compulsory or involuntary conversion for federal tax purposes within the meaning of Code section 1231(a)(3)(A)(ii), if and to the extent that gain or loss on the disposition or conversion is taken into account in determining the taxpayer's federal income tax liability under the Code.

Savings Incentive Match Plan for Employees (SIMPLEs): SIMPLEs are salary reduction retirement plans that qualifying small employers may offer their employees. Only employers who in the preceding year had no more than 100 employees with compensation of at least $5,000 may set up these plans. Employers may not maintain any other employer-sponsored retirement plans, except for collectively bargained employees. SIMPLE plans can be set up as either an IRA or I.R.C. Section 401(k).

Self-employment tax is similar to Social Security and Medicare taxes. It is an amount of tax paid by a taxpayer who is self-employed. The tax rate is a certain percent of self-employment profit. The self-employment tax is calculated on Federal Schedule SE, and reported on Form 1040.

Selling price (amount realized) = the amount realized from a sale or exchange of property is everything received for the property. This includes money plus the fair market value of any property or service received.

Series EE bond is a piece of paper showing that an individual has agreed to lend money to the U.S. Government and that the government agrees to back amount back with extra money (interest) when individual decides to turn in the bond. A Series EE bond is one kind of bond available for purchase at a bank.

Servicemember is a member of the uniformed services, as that term is defined in section 101(a) (5) of title 10, United States Code. See 50 U.S.C.A. app. § 511(1).

Short-term capital gain or loss = gain or loss on the sale or exchange of a capital asset held for one year or less. Short-term gains and gains from collectibles are taxed at 12% on Massachusetts Schedule B.

Simplified Employee Plan (SEP) is an IRA type plan set up by an employer, rather than the employee, into which the employer makes contributions to IRAs on behalf of its employees. This plan is a vehicle for employees to be able to contribute more money to their IRAs than is allowed under traditional IRA rules. The IRA of each participating employee typically takes the form of a separate account in a group IRA. Salary-reduction contributions may be allowed to the following plans of small employers:

  • stock bonus;
  • tax deferral for the employee for the employer's contributions and earnings; and
  • tax exemption for the fund established to provide benefits.

Social Security tax  is an amount paid by individuals during the period in which they earn wages for purposes of providing them with benefits when they retire. Social Security benefits are made available to retired workers, their spouses and their dependents as well as to disabled workers, their spouses and their dependents. Also known as the "Federal Insurance Contributions Act" (FICA) tax. 

Statute of Limitations is the time frame in which the commissioner may assess an additional tax due with interest, which is any time within three years after the date the return was filed or the date it was required to be filed, whichever is later. Time frame in which a taxpayer may file an abatement claim, which is whichever date occurs later: 

  • within three years from the last day for filing the return;
  • within two years from the date the tax was assessed or deemed to be assessed;
  • within one year from the date the tax was paid.

Supplemental unemployment benefits taxed as wages: Benefits received from a company-financed fund to which the employees did not contribute. Such benefits are not treated as unemployment compensation; they are taxable as wages and are subject to withholding for income tax, but may not be subject to social security and Medicare tax. These supplemental unemployment benefits are usually paid under guaranteed annual wage plans and must be reported as income. 


T

The Tax Counseling for the Elderly (TCE) Program provides free tax help to people age 60 and older. Trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation for senior citizens. Volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.

Tax liability is the amount of tax computed as due. Taxpayers pay their federal and Massachusetts income tax liabilities through withholding, estimated tax payments, and payments made with the tax forms they file with the government.

Tax Sheltered Annuity (TSA) Plan or Teacher Insurance and Annuity Association and College Retirement Fund (TIAA-CREF) (often referred to as a "403(b) plan" or a "tax deferred annuity plan") is a retirement plan for employees of public schools and certain tax-exempt organizations. Generally, a TSA or TIAA-CREF plan provides retirement benefits by purchasing annuity contracts for its participants.

Taxable year has the same meaning as in the Code, except as otherwise provided in c. 62. Taxable year is a period usually of 12 months for reporting income and expenses. A taxpayer can report either on a:

  • Calendar basis which is from January 1 st through December 31 st of any given year; or
  • Fiscal basis which is any 12 month period other than a calendar year, eg. July 1 through June 30 of the subsequent year


Taxes are required payments of money by individuals to governments that are used to provide public goods and services for the benefit of the community as a whole. Both the federal government and the Commonwealth of Massachusetts impose an income tax.

Technical Information Releases (TIRs) inform taxpayers and tax practitioners of DOR's response to changes in federal or state tax laws or to court decisions interpreting those laws. A TIR states DOR's official position. It has the status of precedent in the disposition of cases unless and until revoked or modified, and may be relied on by taxpayers in situations where the facts, circumstances and issues presented are substantially similar to those set forth in the TIR.

Telefile was an interactive computer program that allowed a qualified taxpayer to file a simple tax return electronically with IRS/DOR using a toll-free number. Note: Effective for tax years beginning January 1, 2008 DOR no longer offers Telefile as a means to file a tax return.

The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. This plan is similar to private sector 401(k) plans. Taxpayers can defer tax on part of their wages by having it contributed to their accounts in the plan.

Tip income: Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily.

TIRs: See Technical Information Releases

Total income as reported on MA Form 1-NR/PY, Line 3 is federal gross income reported on either U.S. Form 1040, line 22; 1040A, line 15; or 1040EZ, line 4. This amount is for informational purposes only and includes amounts includible federally but not for Massachusetts purposes, e.g., interest on U.S. obligations, Massachusetts and U.S. government contributory pensions; military noncontributory pensions, previously taxed income from annuity, stock bonus, pension, profit sharing plan, Social Security benefits, etc.

Total Income for purposes of Line 14f of Form 1-NR/PY: This is Massachusetts gross income plus non-Massachusetts source income, i.e. Massachusetts gross income as if a taxpayer were a full year Massachusetts resident. This amount is used to compute the deduction and exemption ratio (14g), Massachusetts income divided by total income, which is then used to apportion certain deductions, exemptions, and credits.

Total Income for purposes of the Circuit Breaker Credit is the taxpayer's Massachusetts adjusted gross income (Massachusetts AGI) increased by various amounts that may have been excluded or subtracted when originally calculating Massachusetts AGI. These amounts include income from social security, retirement, pension or annuities, cash public assistance, tax-exempt interest and dividends, short-term and long-term capital losses, certain capital gains, income from a partnership or trust not otherwise included in the taxpayer's Massachusetts AGI. These amounts also include gifts, returns of capital reported on Schedule C and gross receipts from any other source other than the tax credit itself.

Trade or business has the same meaning as in I.R.C. Section 62. Generally, a taxpayer is conducting a trade or business if: 1) the primary purpose for engaging in an activity is for income or profit, 2) the taxpayer is involved in the activity with continuity and regularity and/or 3) certain business expense deductions are allowed against the income earned from such activity under sections 62 and 162 of the Internal Revenue Code.

Trade or business, including employment carried on in Massachusetts: Massachusetts source income of a nonresident includes trade or business income derived from Massachusetts regardless of the year in which it is actually received by the taxpayer and regardless of the taxpayer's residence or domicile in the year the income is received.

If a nonresident's presence for business in Massachusetts is casual, isolated and inconsequential, then a nonresident does not have a trade or business, including any employment carried on in Massachusetts. A nonresident's presence for business in Massachusetts will ordinarily be considered casual, isolated and inconsequential if it is ancillary to the nonresident's primary business or employment duties performed at a base of operations outside of Massachusetts.

Traditional (Regular) IRA, Individual Retirement Account is a retirement plan to which an individual may contribute a maximum amount annually. For joint filers, each may contribute up to the maximum amount allowable. Earnings accumulate tax-free on IRA contributions but distributions of income may be taxable. Massachusetts does not allow a deduction for IRA contributions.


U

Unemployment Compensation represents benefits received by laid-off employees.


V

The Volunteer Income Tax Assistance (VITA) Program offers free tax help to people whose incomes are $35,000 or less. Volunteers sponsored by various organizations receive training to prepare basic tax returns in communities across the country. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations.


W

Wages is compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

WebFile for Income is DOR's own application for filing resident Income Tax returns electronically over the Internet. Other services available through WebFile for Income include: filing extensions and abatements, checking refund status and making payments.

Withholding ("pay-as-you-earn" taxation): Amount of money that employers withhold from employees' paychecks. This money is deposited for the government and it will be credited against the employees' tax liability when they file their income tax returns. Employers withhold money for federal and state income taxes, Social Security taxes, and for localities in certain states.

Workers' Compensation represents amounts received as compensation for personal injuries or sickness while employees are out of work.