- General Rules
- Federal Deductions Allowed
- Federal Deductions Not Allowed
- Income Included but Then Deducted
- Massachusetts Deductions - Schedules B and D
Massachusetts adjusted gross income is 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.. These allowable federal deductions are claimed on Schedule Y, Lines 1 through 10.
However, line 4 of Schedule Y is an exception in that these amounts are not included in Massachusetts gross income even though amounts are initially reported on Massachusetts Form 1 or 1-NR/PY but then such amounts are removed entirely on line 4.
Trade or business deductions allowable under I.R.C. § 62 (e.g., Schedule C and E, etc.) are:
- Deductions for contributions of employers to employees' qualified pension plan under I.R.C. § 404 with certain exceptions (DD 01-07);
- Expenses of travel, meals and lodging while away from home or transportation expenses relating to performance of services as an employee;
- Alimony paid;
- Student loan interest, medical savings account, and self-employed health insurance.
For each deduction, the amount from U.S. Form 1040 should be claimed on Massachusetts Form 1 or 1-NR/PY, Schedule Y as follows:
|FEDERAL ADJUSTMENTS TO GROSS INCOME||U.S. FORM 1040||MASS SCHEDULE Y, OTHER DEDCUTIONS,|
Lines 1 - 10
|FILL IN OVAL/MASS.|
DOTTED LINE CODES
|Certain Business Expenses of Qualified Performing Artist|
fill in oval
|Certain Business Expenses of State and Local Government Officials|
fill in oval
|Certain Business Expenses of National Guard and Reserve Members|
fill in oval
|Health Savings Account Deduction|
|Deductible Part of Self Employment Tax|
|Self Employed SEP, SIMPLE|
and Qualified Plans
|Self-Employed Health Insurance Deduction|
|Penalty on Early Withdrawal of Savings|
Line 30/Line 16
Line 32/Line 17
|Federal Student Loan Interest Deduction|
Line 33/Line 18
|FEDERAL ADJUSTMENTS TO GROSS INCOME||U.S. FORM 1040||MASS SCHEDULE Y, CERTAIN QUALIFIED DEDUCTIONS AND BUSINESS EXPENSES,|
Lines 1 - 10
|FILL IN OVAL/MASS. DOTTED LINE CODES|
|Clean Fuel Vehicles||Line 36||Line 9||Fill in oval and write "Clean Fuel"|
|Contribution to 501(c)(18) Pension Plans||Line 36||Not Allowed||N/A|
|No Tax Status and Limited Income Credit||Line 36||Line 9||Fill in oval and write "PPR"|
|Medical Savings Accounts (Archer MSA)||Line 36||Line 6|
|Reforestation Amortization Deduction||Line 36||Line 9||Fill in oval and write "RFST"|
|Jury Duty Pay Remittance Deduction||Line 36||Line 9||Fill in oval and write "Jury Pay"|
|Repayment of Supplemental Unemployment Benefits||Line 36||Line 9||Fill in oval and write|
|FEDERAL ITEMIZED DEDUCTIONS||U.S. FORM 1040||MASS SCHEDULE Y||FILL IN OVAL/MASS. DOTTED LINE CODES|
|Employee Business Expenses||Schedule A||Line 1||"|
- Deductions related to income not included in Massachusetts gross income
For example, Medicare deducted from social security benefits is not an allowable deduction since the benefits are not included in Massachusetts gross income.
- Depreciation bonus deduction allowed under I.R.C. § 168(k)
For federal income tax purposes, taxpayers are entitled to an additional first-year depreciation deduction, under I.R.C. § 168(k), equal to a percentage of the adjusted basis of "qualified property" acquired by a certain date. Under 2002 legislation, Massachusetts decoupled from bonus depreciation allowed under I.R.C. § 168(k), as amended and in effect for the current year. Therefore, Massachusetts does not adopt this additional depreciation deduction.
- Forfeitures due to premature withdrawal of funds deduction allowed under I.R.C. § 165
For Massachusetts purposes, this deduction is not allowed to the extent that the income represented by such forfeiture is not included in Massachusetts gross income.
- IRA (Retirement) contribution deduction allowed under I.R.C. § 219
For federal purposes, an individual may deduct up to a maximum amount of contributions to an IRA if certain criteria are met. This includes any amount contributed to a 501(c)(18) plan. Massachusetts does not allow this deduction.
- Life tenant income beneficiaries deduction allowed under I.R.C. § 62(a)(5)
For Massachusetts purposes, any deduction relating to life tenants and income beneficiaries of property is not allowed to the extent a trust or estate taxable under this section is allowed the deduction.
- Losses from the sale or exchange of property allowed under I.R.C. § 165(f)
The IRS allows limited excess capital losses over capital gains that may be applied against other income as well as unused capital losses as capital losses in the succeeding years. Massachusetts does not allow these federal special capital loss treatments.
- Net operating loss deduction allowed under I.R.C. § 172
Massachusetts does not allow for the federal provisions to either carry back or carry forward any unused net operating loss.
- Ordinary income portion of a lump sum distribution deduction allowed under § 402(e)(3)
The IRS allows an averaging election, which effectively taxes distributions in the year received at a reduced rate. This method for reporting the distribution is not available in Massachusetts. Massachusetts taxes the full distribution as shown on U.S. Form 4972, not the reduced amount of distribution reported on U.S. 1040.
- Political deductions
For Massachusetts purposes, political deductions that are not allowed: any amount paid or incurred in connection with either influencing legislation; participating in any political campaign on behalf of or in opposition of any public office candidate; attempting to influence the general public with respect to elections or legislative matters; or communicating directly with an executive branch official in an attempt to influence them.
- Qualified pension plan deduction contributions made on behalf of a self employed individual allowed under I.R.C. § 404
For Massachusetts purposes, a self employed individual as defined under I.R.C. § 401(c)(1) is not entitled to the deduction under 404 to the extent attributable to contributions made on behalf of himself.
DD 99-4: Since an S corporation shareholder does not fall under the definition of a self employed individual, such shareholder is considered an employee and therefore does not need to add back the amount of contribution. Prior to this directive, DOR treated S Corporation shareholders as self-employed individuals.
- Qualified stock bonus and profit sharing plan deduction allowed under I.R.C. § 1379(b)(3)
This deduction relates to amounts not received as benefits from certain qualified pension plans.
- S Corporation deduction, taxed as a corporate trust
For Massachusetts purposes, any deduction allowed by Subchapter S of the Code with respect to a federal S corporation that is taxed as a corporate trust is not allowed since such deduction is claimed by the corporate trust.
- Self employment taxes one-half of tax paid deduction allowed under I.R.C. § 164(f)
The IRS allows a deduction equal to one-half of self-employment taxes paid. Since self employment payments from U.S. Form SE may be claimed as a deduction up to $2,000 on either Massachusetts Form 1 or 1-NR/PY per G.L. c.62 s. 3B(a)(3), the IRS deduction is not allowed for Massachusetts purposes.
- State legislators' travel expenses away from home deduction allowed under I.R.C. § 162(h)
Massachusetts does not allow these deductions.
Note: Trade or business deductions allowable under I.R.C. § 62 include:
- Trade or business deductions referenced by I.R.C. § 62(a)(1) which are deductions allowed by the current Internal Revenue Code (unless modified by M.G.L., Chapter 62);
- Trade or business deductions other than those referenced by I.R.C. § 62(a)(1) which are deductions allowed by the 1998 Internal Revenue Code;
- Other deductions allowable under I.R.C. § 62 of the 1998 Internal Revenue Code (unless specifically disallowed by M.G.L., Chapter 62).
Interest, dividends and certain capital gains are further modified. Massachusetts generally does not follow federal rules with respect to these modifications c. 62 s. 2(c)(1)-(3):