Below you will find brief descriptions of major tax law changes for 2007 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- Employer-Provided Health Insurance Coverage for an Employee's Child
- Film Incentive Credit
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2007
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2008
- Health Savings Accounts
- Home Energy Efficiency Heating Credit Carryover to 2007
- Home Heating Fuel Deduction (Expired)
- IRA Distributions for Charitable Purposes
- Medical Savings Accounts (Archer MSAs)
- Military Personnel Serving in a Combat Zone
- No Tax Status and Limited Income Deduction
- Pensions and Retirement Plans; Contributions and Rollovers
- Personal Exemptions
- Personal Exemptions - Health Insurance Requirement for 2007
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker Credit)
- Retirement Planning Services
- Transportation Fringe Benefits
Below you will find brief descriptions of federal tax law changes for 2006 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
Section 179 Expenses
Per the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28), effective for tax years beginning on or after January 1, 2007, the I.R.C. § 179 election to expense property in its initial year has increased from $108,000 ($100,000 base + $8,000 inflation adjustment ) to $125,000 and is extended through 2010. The I.R.C. § 179 overall investment phase-out-threshold has also increased from $430,000 ($400,000 base + $30,000 inflation adjustment.) to $500,000. These amounts will be adjusted for inflation annually. Massachusetts adopts the increases in this expensing provision since I.R.C. § 179 is a trade or business expense adopted by Massachusetts on a current Code basis. For more information, see
Employer-Provided Health Insurance Coverage for an Employee's Child
Effective for taxable years beginning on or after January 1, 2007, If an employee participates in an employer-provided health insurance plan, any amount which would be 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 is mandated by law, is deducted from Massachusetts gross income.
The Massachusetts Health Care Reform Act (St. 2006, c 58) requires 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 has 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 occurs first;"
- under federal income tax law, the expansion of employer-provided health insurance coverage to employees' children up until age 26 may create noncash fringe benefits that may be included in gross income, sometimes referred to as "imputed income." Massachusetts personal income tax provides an exemption for imputed income for purposes where health care coverage is required by Massachusetts law. As a result, Massachusetts will not follow federal law in the area of imputed income resulting from employer-provided health care fringe benefits.
Film Incentive Credit
Motion picture production companies may claim two different tax credits against either their personal income tax or corporate excise liabilities. Each credit has its own qualification requirements and taxpayers may qualify for and claim both credits.
Per An Act Providing Incentives to the Motion Picture Industry (St. 2007, c. 63), for film credit applications that are received on or after January 1, 2007, the following changes have taken place:
- 90% of any payroll and production expense credits not used in the year may be refunded to a taxpayer, at the taxpayer's election;
- the minimum expenditure threshold required to be met in a twelve-month period has been lowered from $250,000 to $50,000;
- the payroll credit has been increased to apply to 25% of a taxpayer's qualifying expenditures;
- the $7,000,000 limitation on the amount of credits taken on any one motion picture has been eliminated;
- a "digital media project" is now included in the definition of a "motion picture"; and
- the sunset date for the film incentives statute has been extended from January 1, 2013 to January 1, 2023.
For more information, see:
Film Incentive Credit - Refundable Payroll and Production Expense Credits Not Used:
For film credit applications that are received on or after January 1, 2007, the payroll and production expense credits are refundable with certain limitation. At the written request of the taxpayer, the credits will be applied against taxpayer's liability, first reduced by any other available credits; any film credit remaining will be refunded at 90 percent.
A taxpayer that elects to claim a refund of the film credit is not permitted to seek a partial refund and a partial transfer or carryover of the credit. However, the refund can be applied as an estimated payment for the subsequent tax year. For more information, see:
Health Insurance, Penalty for Failure to Purchase - Tax Year 2007
As a result of the recently enacted Massachusetts Health Care Reform Act, most Massachusetts residents age 18 and over are required to have health insurance, if it is affordable to them. Residents who have access to affordable coverage but do not obtain the coverage, or do not obtain a waiver from the mandate, may face state tax penalties pursuant to G.L. c. 111M, sec. 2. For taxable year 2007, the penalty for failing to obtain affordable coverage by December 31, 2007 is loss of the personal exemption.
New Schedule HC, Health Care Information, must be completed by all full-year residents and certain part-year residents age 18 and over to notify DOR whether or not they have health insurance, and to determine the amount of their personal exemption. For more information, see:
830 CMR 111M.2.1
Health Care Information
Schedule HC, Health Care Information
Commonwealth Health Connector
Health Insurance, Penalty for Failure to Purchase - Tax Year 2008
Pursuant to G.L. c. 111M, Massachusetts Health Care Reform Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2008, 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).
These penalties apply only to adults who are deemed able to afford health insurance. On an annual basis, the Connector establishes separate standards that determine whether individuals, married couples and families can afford health insurance, based on their incomes and affordable health insurance premiums. Those who are not deemed able to afford health insurance pursuant to these standards will not be penalized. Individuals also have the opportunity to file appeals with the Connector asserting that hardship prevented them from purchasing health insurance (and thus that they should not be subject to tax penalties). For more information, see:
830 CMR 111M.2.1
Health Care Information
Commonwealth Health Connector
Health Savings Accounts
Massachusetts adopts the federal deduction allowed to individuals for contributions to a Health Savings Account, subject to federal limitations which are adjusted annually for inflation. Health Savings Accounts (HSAs) are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. Per the Tax Relief and Health Care Act of 2006 (P.L.109-432), Massachusetts adopts the changes to this deduction including provisions allowing rollovers from Flexible Savings Accounts and Health Reimbursement Accounts into HSAs as well as one-time rollovers from IRAs to HSAs. It also repeals the annual plan deductible limitation on HSA contributions. For calendar year 2007, the maximum annual aggregate contribution has increased to $2,850 for an individual plan or $5,650 for a family plan.
The contribution limitations have also increased for individuals age 55 or older (but not covered by Medicare) by the end of the calendar year. For calendar year 2007, the maximum annual aggregate contribution for an individual age 55 or older is $3,650 for an individual plan or $6,450 for a family plan. For more information, see:
Home Energy Efficiency Heating Credit Carryover to 2007
Subject to certain limitations, taxpayers and entities that were owners of residential properties located in Massachusetts could claim a credit in the amount of the net expenditures for the purchase and installation of energy-efficient heating items in such properties.
For tax year 2007, the home energy efficiency credit is limited only to the amount of the credit that exceeded the 2006 tax. Taxpayers who did not take the credit in 2006 or who did not have an excess amount of the credit remaining from 2005 that was not taken in 2006 are not eligible for any credit in 2007. For more information, see:
IRA Distributions for Charitable Purposes
The Pension Protection Act of 2006, Public Law 109-280 ("Act") provides for an exclusion from federal gross income for distributions from traditional and Roth IRAs to qualified charities that would otherwise be taxable income.
The exclusion applies to:
- distributions made on behalf of taxpayers who are at least 70 ½ on the date of distribution in 2006 or 2007;
- distributions made up to a maximum of $100,000 per year; and
- traditional and Roth IRAs.
The exclusion does not apply to Simplified Employee Pension plans, SIMPLE plans, Keoghs, or any other retirement plan such as an IRC § 401(k), 403(b), defined benefit or contribution plan or profit sharing plan.Examples
Medical Savings Accounts (Archer MSAs)
Archer MSAs are tax-exempt trusts or custodial accounts to which tax-deductible contributions may be made by individuals with a high deductible health plan. In addition, employer contributions made on behalf of the employee are excludable from the employee's gross income. The Tax Relief and Health Care Act of 2006 (P.L.109-432) extends the Archer MSA provisions for two years, through December 31, 2007, thereby allowing employers and employees to establish and contribute to new MSAs in 2006 and 2007. Since DOR follows the Code as of January 1, 2005, and these provisions were enacted into the Code after January 1, 2005, DOR does not adopt the extension to establish and contribute to new MSAs.
Under the January 1, 2005 Code, the Archer MSA provisions contained a sunset date of December 31, 2005 that grandfathered in prior participants and provided that after December 31, 2005, contributions would be allowed by or on behalf of individuals who previously made (or had made on their behalf) Archer MSA contributions and employees who are employed by a participating employer. Since DOR follows the provisions of the Code as of January 1, 2005, deductions are allowed for MSAs established prior to January 1, 2006, including any inflation adjustments to the limits and maximums for deductibles. For more information, see:
Military Personnel Serving in a Combat Zone
Compensation received for active service in a combat zone by members of the armed forces of the United States is excluded from Massachusetts gross income. Income earned for active service for any month during which a member below the grade of commissioned officer served or was hospitalized as a result of injuries received during service in a combat zone is excluded from gross income; a portion of such income earned by commissioned officers is also excluded. Designated combat zones include/have included: the Persian Gulf, Kosovo and Afghanistan.
Massachusetts gross income is based on federal gross income. Massachusetts adopts the Internal Revenue Code as of January 1, 1998. Since the relevant federal provisions were enacted before January 1, 1998, Massachusetts excludes from income, to the same extent as the Code, compensation earned by members of the armed forces for service in a combat zone. For more information, see:
TIRs 03-8, 02-4 and 99-6
No Tax Status and Limited Income Credit Thresholds:
Because the income level for No Tax Status for joint filers and heads of household is based in part on the personal exemption amounts, the threshold for No Tax Status for these taxpayers has been changed for tax year 2007 to reflect changes to the personal exemptions. The Limited Income Credit calculation is similarly affected.
- Joint Filers.
No tax is imposed if the Massachusetts adjusted gross income (AGI) does not exceed $15,850 plus $1,000 per dependent. Joint filers are eligible for the Limited Income Credit if Massachusetts AGI does not exceed $27,738 plus $1,750 per dependent.
- Head of Household.
No tax is imposed if the Massachusetts AGI does not exceed $13,975 plus $1,000 per dependent. Heads of household are eligible for the Limited Income Credit if Massachusetts AGI does not exceed $24,456 plus $1,750 per dependent.
- Single Filers.
No Tax Status for single filers is unaffected by the increase in the personal exemption amount. For single filers, no tax is imposed if the taxpayer's Massachusetts AGI does not exceed $8,000. Single filers are eligible for the Limited Income Credit if Massachusetts AGI does not exceed $14,000.
Pensions and Retirement Plans; Distributions and Rollovers
The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16 or "EGTRRA") has made the following Internal Revenue Code (Code) provisions relating to qualified plans and other tax-favored retirement plans:
- increases the federal income tax contribution limits for elective deferrals;
- provides catch-up contributions for those age 50 or older;
- increases portability between plans and accounts by expanding the rollover provisions; and
- makes several other changes related to retirement plans and accounts.
Under "EGTRRA", 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. 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. For more information, see:
Recent legislation provides that personal exemptions may increase for tax years beginning on or after January 1, 2004 if tax revenues increase. Applicable for the 2007 tax year, the personal income tax exemptions have increased from $3,850 to $4,125 for single and married filing separately filers, from $5,950 to $6,375 for head of household filers, and from $7,700 to $8,250 for joint filers. For more information, see:
Personal Exemptions - Health Insurance Requirement for 2007
Beginning July 1, 2007, a new Massachusetts law states that residents age 18 and over must have health insurance. With few exceptions, adults must be able to show that they have health insurance by December 31, 2007, by filing Schedule HC, Health Care Information with their Form 1 or Form 1-NR/PY.
If you have private health insurance, you will receive a Form 1099-HC , Massachusetts Health Care Coverage, from your health insurance provider. You will need certain information from this form to complete Schedule HC.
Those who cannot show that they have health insurance will lose the tax benefit of their personal exemption on their 2007 Massachusetts income tax return. This tax benefit is currently $219 for an individual taxpayer. Non-compliance penalties will increase for 2008.
Most adults already have health insurance, perhaps through their employer or a government program. If you do not have this insurance, the Commonwealth Health Connector can help you or your employer to find the right health plan. The Health Connector has new health insurance choices for you and your family. These plans carry the state's Seal of Approval for quality and affordability. You may also purchase plans through approved Massachusetts health insurance carriers. For more information, see
830 CMR 111M.2.1
Health Care Information
Schedule HC, Health Care Information
Commonwealth Health Connector
Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker Credit)
Certain taxpayers age 65 or older may be eligible to claim a refundable credit on their state income taxes for the real estate taxes paid during the tax year on the residential property they own or rent in Massachusetts that is used as their principal residence. If the credit due the taxpayer exceeds the amount of the total income tax payable for the year by the taxpayer, the excess amount of the credit will be refunded to the taxpayer without interest. For tax year 2007, the maximum credit allowed for both renters and homeowners is $900.
To be eligible for the credit for the 2007 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2007 tax year; the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence; the taxpayer's "total income" cannot exceed $48,000 for a single filer who is not the head of a household, $60,000 for a head of household, or $72,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2007, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $772,000. For more information, see:
Retirement Planning Services
As a result of Code update, Massachusetts adopts the federal exclusion for the employee fringe benefit of retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan. Qualified employer plans include IRC sec. 401(a) plans, annuity plans, government plans, IRC sec. 403(b) annuity contracts, SEPs and SIMPLE accounts. This exclusion is due to expire for tax or plan years beginning after December 31, 2010. For more information, see:
Transportation Fringe Benefits
As a result of Code Update, for tax years starting on or after January 1, 2005, Massachusetts adopts the federal exclusion without any differences in exclusion amounts or allowed benefits. The Massachusetts exclusion amounts for tax year 2007 are $215 per month for employer-provided parking and $110 per month for employer-provided vanpool and transit pass benefits combined, including transit pass and employer-provided vanpool benefits that are a reduction in salary. For more information, see:
Major Federal Tax Law Changes for 2007 That Do Not Pertain to Personal Income Tax in Massachusetts
Attorneys' Fees Relating to Awards to Whistleblowers
The Tax Relief and Health Care Act of 2006 added this federal deduction. DOR does not adopt this deduction as it was enacted after January 1, 2005.
For federal personal income tax purposes, Congress has extended this deduction for two years, through December 31, 2007. Under section 62(a)(2) of the Code, eligible educators are allowed a maximum deduction of $250 for qualified expenses (e.g., books, supplies, computer equipment. For Massachusetts purposes, DOR follows the provisions of the Code as of January 1, 2005, with certain exceptions. Under the January 1, 2005 Code, this deduction was due to expire for tax years beginning after December 31, 2005. Massachusetts does not adopt this extension since it was enacted into the Code after January 1, 2005.
Tuition and Fees Deduction
For federal personal income tax purposes, Congress has extended this deduction for two years, through December 31, 2007. Under section \ 222 of the Code, an individual is allowed a deduction for qualified tuition and related expenses for higher education paid by the individual during the taxable year. For Massachusetts purposes, DOR follows the provisions of the Code as of January 1, 2005, with certain exceptions. Under the January 1, 2005 Code, this deduction was due to expire for tax years beginning after December 31, 2005. Massachusetts does not adopt this extension since it was enacted into the Code after January 1, 2005.
Note that Massachusetts continues to allow its own college tuition deduction for tuition payments paid by the taxpayer, on behalf of the taxpayer or the taxpayer's dependent, to a qualifying two- or four-year college leading to an undergraduate or associate's degree, diploma or certificate. For more information, see: