- General Rules
- Bonds and Obligations
- Interest - Qualifying as Massachusetts Bank Interest
- Interest - Federal and Massachusetts Differences
- Interest - Where Interest Income is Reported but Then Deducted
- Partnership and S Corporation Flow through of Interest and Dividends
- Schedule B and D
- Schedule B and D Examples:
- Schedule B and D Worksheets, Including Examples:
- Interactive Excess Exemptions from Interest and Dividend Income, 12% Income and Long-Term Capital Gain Income Worksheet
- Excess Exemptions from Interest and Dividend Income, 12% Income and Long-Term Capital Gain Income Worksheet Example
- Long-Term Capital Losses Applied against Interest and Dividends Worksheet Example
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.
Interest 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.
For Massachusetts purposes:
- Massachusetts gross income does not include interest on obligations of the United States to the extent such interest is included in federal gross income;
- Massachusetts gross income does include interest on state and local obligations to the extent such interest is excluded from federal gross income. However, interest from obligations issued by the Commonwealth or any political subdivision is not taxable;
- Certain interest defined as Massachusetts bank interest qualifies for an exemption of either $100 or $200 depending on filing status.
Interest - Qualifying as Massachusetts Bank Interest
| Interest Earned from: | Where to Report: |
| Certificates of Deposit (CD) held in a Massachusetts bank: | Qualifies as MA bank interest; amount is reported on Form 1, Line 10 or 1-NR/PY, Line 12, and qualifies for either $200 or $100 exemption. Amount less exemption is taxed at 5.25% |
| Certificates of Deposit (CD) held in a non-Massachusetts bank: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Installment sales: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Insurance policies: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Loans made by an individual or company: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Loans made by pawnbrokers in the course of business: | Qualifies as MA bank interest; amount is reported on Form 1, Line 10 or 1-NR/PY, Line 12, and qualifies for either $200 or $100 exemption. Amount less exemption is taxed at 5.25% |
| Massachusetts banks on deposit accounts including term and time deposits, savings accounts, savings shares and NOW accounts. The interest is from savings banks, credit unions, federal savings and loan associations, etc. located in the Commonwealth: | Qualifies as MA bank interest; amount is reported on Form 1, Line 10 or 1-NR/PY, Line 12, and qualifies for either $200 or $100 exemption. Amount less exemption is taxed at 5.25% |
| Money Market Deposit Accounts in Massachusetts banks: | Qualifies as MA bank interest; amount is reported on Form 1, Line 10 or 1-NR/PY, Line 12, and qualifies for either $200 or $100 exemption. Amount less exemption is taxed at 5.25% |
| Money Market Deposit Accounts in financial institutions other than Massachusetts banks, credit unions etc.,(e.g. Fidelity): | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Non-Massachusetts banks on deposit accounts including term and time deposits, savings accounts, savings shares and NOW accounts. The interest is from savings banks, credit unions, federal savings and loan associations, etc. located outside the Commonwealth: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Real estate tax escrow accounts. Interest earned on real estate taxes collected with mortgage payments and held in escrow by the bank until taxes are due if the bank is in Massachusetts: | Qualifies as MA bank interest; amount is reported on Form 1, Line 10 or 1-NR/PY, 5.25% income, and qualifies for either $200 or $100 exemption. Amount less exemption is taxed at 5.25% |
| Real estate tax escrow accounts. Interest earned on real estate taxes collected with mortgage payments and held in escrow by the bank until taxes are due if the bank is outside Massachusetts: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| Tax Refunds from any tax agency, e.g. Massachusetts tax refund, federal tax refund, property tax refund, etc.: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| U.S. and State/Municipal Obligations: | |
| State/Municipal Obligations from Massachusetts that are excluded under I.R.C. Section 103: | Generally, interest from obligations issued by the Commonwealth, or any political subdivision thereof is exempt. See TIR 80-2 and TIR 89-8 for a list of taxable versus exempt bonds. |
| State/Municipal Obligations other than Massachusetts that are excluded under I.R.C. Section 103: | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| U.S. Obligations that are secondary, indirect obligations such as "Freddie Mac" "Ginnie Mae" and "Fannie Mae": | Does not qualify as MA bank interest; amount is reported on Schedule B and taxed at 5.25% |
| U.S. Obligations that are direct obligation of the United States, including U.S. Treasury bills, notes, certain bonds and savings bonds received by the taxpayer as a beneficial owner: | Interest from direct obligations of the United States is exempt. See TIR 80-2 and TIR 89-8 for a list of taxable versus exempt bonds. |
Interest - Federal and Massachusetts Differences
1099s for the following interest and dividends for a single filer:
| Source of Interest | Interest Amount | Fed. Taxable? Yes or No | Fed. 1040 8a or 8b? | Mass. Sch. B Line 1 Amount | Mass Taxable? Yes or No | Excluded onSch. B? What Line? | Mass. Taxable Amount | Reported Where? |
| Ginnie Mae | $1200 | yes | 8a | $1200 | yes | no | $1200 | Schedule B, Line 7 |
| U.S. Treasury Bills | $700 | yes | 8a | $700 | no | Line 6 | $0 | |
| MA Bonds |
$600
| no | 8b | $600 | no | Line 6 | $0 | |
| NY Bonds | $400 | no | 8b | $400 | yes | no | $400 | Schedule B, Line 7 |
| MA Banks | $1500 | yes | 8a | $1500 | yes | Line 5 | $1400 | Form 1, Line 5 |
| NY Banks | $800 | yes | 8a | $800 | yes | no | $800 | Schedule B, Line 7 |
| Total | 5,200 | $3,800 | |||||
Threshold for Filing
Massachusetts Follows Federal Filing Requirements for Dividends Only:
Taxpayers do not need to file Federal Schedule B if they have ordinary dividend income of $1,500 or less.
Massachusetts Requirement to File Schedule B for Interest:
As in past years, certain taxpayers with bank or other financial accounts in a foreign country, and certain taxpayers involved in foreign trust transactions, must continue to file Schedule B regardless of the amount of interest or dividends they receive.
Dividends Including Federal Qualified Dividends - Amount Reported Federally:
Each taxpayer issues a Form 1099-DIV, Dividends and Distributions:
- total ordinary dividends which are found in Box 1a of the 1099-DIV are reported on U.S. Schedule B, Part II, Line 6 and then on U.S. Form 1040, Line 9a;
- qualified dividends are found in Box 1b of the 1099-DIV. This is the portion of the amount in box 1a that is considered to be qualified dividends eligible for a lower tax rate federally. This amount, included in both Schedule B, Part II, Line 6 and then on U.S. Form 1040, Line 9a, is reported on U.S. Form 1040, Line 9a, is reported on U.S. Form 1040, Line 9b.
Massachusetts References:
Money Market Deposit Accounts:
Real Estate Tax Escrow Interest:
- LR 79-10: Interest Paid By a Credit Union on Advance Payments of Real Estate Taxes
State/Municipal Obligations:
- M.G.L. Chapter 62, Section 2(a)(1)(A)
- TIR 80-2: Income Tax Treatment of Interest and Gains on Certain Bonds
- TIR 89-8: Income Tax Treatment of Interest and Gains on Federal Obligations
- LR 84-41: Zero Coupon Bonds Issued by Non-Mass Municipalities
- DOR-D 88-19: Losses from Sale of Tax Exempt Bonds
U.S. Obligations:
- Chapter 62 Section 2(a)(2)(A)
- TIR 80-2: Income Tax Treatment of Interest and Gains on Certain Bonds
- TIR 89-8: Income Tax Treatment of Interest and Gains on Federal Obligations