- Accident and Health Plans
- Adoption Assistance Programs
- Economic Stimulus Payments
- Educational Assistance Programs
- Gain from the Sale of Principal Residence
- Military Fringe Benefits
- Qualified Tuition Programs (QTPs)
- Transportation Fringe Benefits
- Massachusetts References
Tax Years 2007 – 2009 - Massachusetts Health Care Reform:
Effective for taxable years beginning on or after January 1, 2007, If an employee participated in an employer-provided health insurance plan, any amount which would have been included in gross income of the employee by reason of coverage under the plan of any person other than the employee, to the extent such coverage was mandated by law, was deducted from Massachusetts gross income.
The Massachusetts Health Care Reform Act (St. 2006, c 58) required a broadening of dependent coverage offered by health insurance carriers. The Legislature made several technical corrections to the health care reform law in the recent "Act further Regulating Health Care Access" (St. 2007, c. 205). Collectively, per these amendments:
- as of January 1, 2008 employer-provided health insurance coverage had been expanded to include employees' children "under 26 years of age or for 2 years after the end of the calendar year in which such persons last qualified as dependents, whichever occurred first;"
- under federal income tax law, the expansion of employer-provided health insurance coverage to employees' children up until age 26 may have created noncash fringe benefits that may have been included in gross income, sometimes referred to as "imputed income." Massachusetts personal income tax provided an exemption for imputed income for purposes where health care coverage was required by Massachusetts law. As a result, Massachusetts did not follow federal law in the area of imputed income resulting from employer-provided health care fringe benefits.
Adoption Assistance Programs
Tax Years 2002 - 2004:
Under the Internal Revenue Code of January 1, 1998, this exclusion had expired for expenses paid after December 31, 2001. Since DOR followed the 1/1/98 Code, amounts paid by an employer beginning after December 31, 2001 were included in Massachusetts gross income.
For tax years beginning on or after January 1, 2002 through December 31, 2004, Massachusetts gross income of an employee included the value of amounts paid by the employer for qualified adoption expenses in connection with the adoption of an eligible child.
Employers reported adoption benefits in box 12 of From W-2 with code T. Amounts were also included as social security and Medicare wages in boxes 3 and 5. However, the benefits were not included as wages in box 1.
Tax Years 1998 - 2001:
Under the January 1, 1998 Code, Massachusetts had adopted the federal treatment for the exclusion of amounts paid by an employer for qualified adoption expenses paid on or before December 31, 2001 and therefore gross income of an employee did not include the value of amounts paid by the employer for qualified adoption expenses in connection with the adoption of an eligible child.
Prior to 1998:
Massachusetts did not allow this exclusion.
Economic Stimulus Payments
Effective for tax year 2008, Public Law 110-185, § 101 authorized the Internal Revenue Service (IRS) to issue economic stimulus payments to eligible taxpayers. The payments were the result of a federal credit treated as a payment against federal income tax.
The amount of the credit was not included in the taxpayer's federal gross income. Massachusetts gross income is federal gross income with certain modifications not relevant here. Since the economic stimulus payments were not included in federal gross income, they were not included in Massachusetts gross income and thus not subject to the Massachusetts personal income tax.
Educational Assistance Programs
Tax Years 2002 - 2004:
For tax years beginning on or after January 1, 2002 through December 31, 2004, Massachusetts gross income of an employee included the value of amounts paid by the employer for qualified education assistance.
Tax Years 2000 - 2001:
Under the Internal Revenue Code of January 1, 1998, this exclusion had expired for courses beginning after May 31, 2000. Since DOR followed the 1/1/98 Code, amounts paid by an employer for courses beginning after May 31, 2000 were included in Massachusetts gross income. Amounts paid by an employer for qualified educational assistance on behalf of an employee for courses that began on or before May 31, 2000 were excluded from Massachusetts gross income.
Tax Years 1998 - 1999:
Under the Internal Revenue Code, as amended and in effect on January 1, 1998, Massachusetts had adopted the provisions of IRC § 127, as in effect on January 1, 1998, which provided for an exclusion from gross income for qualified educational expenses reimbursed to an employee under an employer-provided education assistance program for courses that began before May 31, 2000. Gross income of an employee did not include the value of such amounts paid up to a maximum of $5,350. The exclusion was not allowed for graduate level courses nor for non-job related education involving sports, games or hobbies. Any federal tax law changes to this exclusion were not automatically adopted. Massachusetts continued to follow the "Code" of January 1, 1998.
Prior to 1998:
Massachusetts did not allow this exclusion.
Under the January 1, 1998 Code, Massachusetts allowed the federal exclusion for certain military fringe benefits including combat zone compensation, veterans' and medical benefits, disability benefits, moving allowances and a death gratuity benefit of $3,000.
- earnings from funds invested in a QTP were federally tax-deferred until distribution in order to facilitate savings for higher education;
- the beneficiary paid federal taxes on the earnings portion of distributions from a QTP if spent for qualified higher education expenses. The earnings portion was the amount by which the distributed amount or the value of the education benefits exceeds contributions made on behalf of the beneficiary;
- rollovers that would not trigger recognition of income were permitted on distributions or transfers from the account of a designated beneficiary to a family member's account;
- a predetermined maximum amount for room and board qualified for QTP distributions.
Note: if the earnings were not spent for qualified education expenses, then amounts would not qualify for benefit of tax deferral, and would be taxed to owner at owner's tax rate, rather than at beneficiary' rate.
Prior to 2002:
Massachusetts followed the federal provisions relating to I.R.C. § 529 plans before the adoption of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA").
For tax years 2009-2011:
Two federal Acts enacted subsequent to January 1, 2005 created temporary differences between the Massachusetts and federal exclusion amount for the combined transit pass and commuter highway vehicle transportation benefits for tax years 2009 through 2011.
- For tax year 2011:
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312 or “2010 Tax Relief Act”) temporarily extended the federal exclusion amount of $230 for tax year 2011.
- For the months of March through December, 2009 through tax year 2010:
The Federal American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") increased the federal exclusion amount to $230 per month for the months of March through December, 2009 and all of tax year 2010.
The federal exclusion amounts were $230 for employer provided parking and $230 for combined transit pass and commuter highway vehicle transportation benefits.
The Massachusetts exclusion amounts were $230 for employer provided parking and $120 for combined transit pass and commuter highway vehicle transportation benefits.
For January through March 2009:
Based on IRS's Revenue Procedure/inflation adjustment formula, both the Federal and Massachusetts exclusion amount was $230 per month for employer-provided parking and $120 per month for employer-provided combined transit pass and commuter highway vehicle transportation benefits, including transit pass and employer-provided vanpool benefits that are a reduction in salary.
For tax years beginning on or after January 1, 2005 through 2008:
As a result of Code Update, for tax years starting on or after January 1, 2005, Massachusetts adopted the federal exclusion without any differences in exclusion amounts or allowed benefits including any increased amounts per year based on IRS' Revenue Procedure/inflation adjustment formula.
|Amount Excluded from Gross Income||Tax Year 2005||Tax Year 2006||Tax Year 2007||Tax Year 2008|
|Benefit up to a maximum of|
transit pass and commuter highway
vehicle transportation benefits
For tax years beginning before January 1, 2005:
Massachusetts followed the Code as amended and in effect on January 1, 1998. However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. Further, Massachusetts did not adopt the federal exclusion (enacted subsequent to January 1, 1998), for transit pass and employer-provided vanpool benefits if the employer offered the benefit as a reduction in salary and the employee chose the benefit in lieu of salary.
The Federal Transportation Equity Act for the 21st Century, enacted after January 1, 1998, changed the Code provisions regarding this exclusion and thus created differences between the Massachusetts and federal treatment of this exclusion.
Two Special Federal Provisions That Massachusetts Did Not Follow:
1. Federal Inflation Adjustment Formula:
- Revenue Procedure 2002-70 provides the 2003 cost of living inflation adjustment for the federal transportation fringe benefit exclusion amounts under I.R.C. § 132 (f)(2).
- Massachusetts did not adopt this provision. In contrast, Massachusetts followed the inflation adjustment formula allowed under the January 1, 1998 Code. Therefore, the federal and Massachusetts exclusion amounts were different from year to year.
The table below reflects these differences:
|Amount Excluded from Gross Income||Tax Year 2002||Tax Year 2003||Tax Year 2004|
|Benefit up to a maximum of:||Federal/Mass.||Federal/Mass.||Federal/Mass.|
|Employer-provided parking||$185 / $195||$190 / $195||$195 / $200|
benefits and transit passes
|$100 / $75||$100 / $75||$100 / $75|
|2.||The Transportation Equity Act for the 21st Century, enacted on June 6, 1998 and effective for tax years beginning after December 31, 1997 also amended I.R.C. § 132(f) to make nontaxable the employee's choice of vanpool and transit pass benefits taken in lieu of salary. Federally, an employer can provide transportation benefits to their employees under two methods:|
- as a reduction in gross wages - employees actually pay for the benefits:
(added by the Transportation Equity Act for vanpool benefits and transit passes) Employees' federal gross wages subject to tax were reduced by the amount paid by the employee, subject to the maximum monthly amount allowed as a reduction, providing them with a tax savings. If employees chose not to take the benefits, there was no reduction on their gross wages, and therefore no tax savings; or
- as an increase in gross wages - employers pay for the benefits for employees:
The value of such benefits was treated as wages over and above employees' salaries and was included in wages, but the employer may exclude such benefits, subject to the maximum monthly amount. If employees elected to take a cash equivalent instead, the full amount was included in their wages.
|Massachusetts followed the federal Code as of January 1, 1998:|
- Employer provided parking benefits:
Massachusetts followed the federal provisions for the taxability of benefits offered to employees either as a salary reduction or as an addition to their salaries.
- Vanpool benefits and transit passes as a reduction in gross wages - employees actually pay for the benefits:
Massachusetts did not adopt this federal wage exclusion if the employer offered these benefits as a reduction in salary and the employee chose the benefits in lieu of salary. As a result, if amounts paid have reduced the employee's federal wages subject to tax, the employer must add back the exclusion amount in the employee's W-2 for Massachusetts tax purposes.
Effective January 1, 1998, Massachusetts adopted the federal treatment for Employer Provided Transportation Fringe Benefits under the Internal Revenue Code, as amended and in effect on January 1, 1998. Any federal tax law changes to Employer Provided Transportation Fringe Benefits were not automatically adopted.