Below you will find brief descriptions of major tax law changes for 2008 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- 401(k) Qualified Cash or Deferred Arrangement Plan - CODA
- Dairy Farm Tax Credit
- Economic Stimulus Payments
- Employer-Provided Health Insurance Coverage for an Employee's Child
- Extensions Relating to Disaster Areas
- Filing Requirement - Schedule E
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2008
- Health Savings Accounts
- IRA Distributions for Charitable Purposes
- Late Pay Penalties
- Life Sciences Credits
- Military Personnel Serving in a Combat Zone
- Personal Exemptions
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
- Retirement Planning Services
- Transportation Fringe Benefits
Below you will find brief descriptions of federal tax law changes for 2008 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
Major Tax Law Changes for 2009 Pertaining to Personal Income Tax in Massachusetts
Section 179 Expenses
Per the Economic Stimulus Act of 2008 (P.L. 110-185), effective for tax year beginning on or after January 1, 2008 and ending on or before December 31, 2008, the I.R.C. § 179 election to expense property in its initial year has temporarily increased from $125,000 to $250,000. The I.R.C. § 179 overall investment phase-out-threshold has also temporarily increased from $500,000 to $800,000. 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:
401(k) Qualified Cash or Deferred Arrangement Plan - CODA
For taxable years beginning on or after January 1, 2008, under G.L. c. 62, s. 2(d)(1)(D), partners and other self-employed individuals are denied any deduction for contributions to their 401(k) plans, irrespective of whether the contributions are elective contributions or matching contributions made on their behalf. This Directive supersedes or modifies all other DOR public written statements to the extent that they may appear to be inconsistent with it. For more information, see:
Dairy Farm Tax Credit
The Massachusetts dairy farmer tax credit was established to offset the cyclical downturns in milk prices paid to dairy farmers and is based on the U.S. Federal Milk Marketing Order for the applicable market. A taxpayer who holds a certificate of registration as a dairy farmer pursuant to G.L. c. 94, § 16A is allowed a refundable tax credit based on the amount of milk produced and sold. The dairy farmer tax credit is 90% refundable. For more information, see:
Economic Stimulus Payments
Per the Economic Stimulus Act of 2008 (P.L. 110-185), I.R.C. § 101 authorizes the Internal Revenue Service (IRS) to issue economic stimulus payments to eligible taxpayers. The payments are the result of a federal credit treated as a payment against federal income tax.
The amount of the credit is 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 are not included in federal gross income, they are not included in Massachusetts gross income and thus not subject to the Massachusetts personal income tax. 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.
Extensions Relating to Disaster Areas
Effective retroactively to September 1, 2008, DOR will grant automatic extensions of time for (affected taxpayers) to file returns and submit payments of tax as the result of any declaration by the President of the United States of a disaster area within the United States. The specific relief granted by DOR for each disaster will generally be that as provided and announced by the Internal Revenue Service (IRS).The due date and payment date for returns and payments required to be filed by affected taxpayers will be extended for a specified period of time as announced by the IRS, unless the Department publicly announces otherwise. The extension will cover the filing of tax returns, the payment of tax (including payment of estimated tax), and the filing of tax extension forms with DOR. For more information, see:
Filing Requirement - Schedule E
For tax years beginning on or after January 1, 2008, taxpayers with income or loss reported on a Schedule E must file their tax returns using computer-generated forms produced by third-party software. The tax returns may be generated by taxpayers or by tax professionals. Taxpayers are encouraged, but not required, to submit the return electronically. Paper forms produced using the third-party software product will contain a two-dimensional (2D) bar code and will also be accepted. Tax preparers hired by taxpayers to complete their returns must follow the Commissioner's electronic filing rules. Taxpayers are encouraged, but not required, to make their tax payments electronically as well. Schedule E income includes:
- rental, royalty and REMIC income or loss and farm rental income and expenses;
- income or loss from partnerships and S corporations;
- income or loss from grantor-type trusts and non-Massachusetts estates or trusts;
Health Insurance, Penalty for Failure to Purchase - Tax Year 2008
Pursuant to G.L. c. 111M, s. 2, 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:
Health Care Information
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. For calendar year 2008, the maximum annual aggregate contribution is equal to $2,900 for an individual plan or $5,800 for a family plan.
The contribution limitations are increased for individuals age 55 or older (but not covered by Medicare) by the end of the calendar year. For calendar year 2008, the maximum annual aggregate contribution for an individual age 55 or older is equal to $3,800 for an individual plan or $6,700 for a family plan. For more information, see:
IRA Distributions for Charitable Purposes
The Pension Protection Act of 2006 (P.L.109-280) provided for an exclusion from federal gross income for distributions made in tax years 2006 and 2007 from traditional and Roth IRAs to qualified charities that would otherwise be taxable income. Per the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), the exclusion has been extended for distributions made in tax years 2008 and 2009 .
The exclusion applies to:
- distributions made on behalf of taxpayers who are at least 70½ on the date of distribution in 2008 or 2009;
- 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 I.R.C. §§ 401(k), 403(b), defined benefit or contribution plan or profit sharing plan.
Late Pay Penalties
Section 21 of chapter 182 of the Acts of 2008 increases the rate at which late pay penalties under G.L. c. 62C, s. 33 (b) and (c) accrue from one-half of one percent a month to one percent a month. Effective date of this change is July 1, 2008. The maximum amounts of these penalties are unchanged at 25%. For more information, see:
An Act Providing for the Investment in and Expansion of the Life Sciences Industry in the Commonwealth" (the Act). St. 2008, c. 130:
For taxable years beginning on or after January 1, 2009, 2 new credits may be available for corporate excise and personal income taxpayers that qualify as certified life sciences companies, only to the extent authorized pursuant to the Life Sciences Tax Incentive Program:
- Life Sciences Investment Tax Credit; and
- FDA User Fees Credit.
Life Sciences Investment Tax Credit
This credit, which is available to certified life sciences companies only to the extent authorized pursuant to the Life Sciences Tax Incentive Program, is equal to 10% of the cost of qualifying property acquired, constructed or erected during the taxable year and used exclusively in the Commonwealth.
This credit can apply to purchases made on or after January 1, 2009 even if a construction project started before that date. The scope of qualifying property for purposes of the new credit is the same as that provided by the existing ITC under M.G.L. Ch. 63, sec. 31A.
FDA User Fees Credit
This credit is available for user fees paid on or after June 16, 2008 to the U. S. Food and Drug Administration (U.S.F.D.A.) upon submission of an application to manufacture a human drug in the Commonwealth.
This credit, which is available to certified life sciences companies only to the extent authorized pursuant to the Life Sciences Tax Incentive Program, is equal to 100% of the user fees actually paid by the taxpayer, as specified in the certification, and may be claimed in the taxable year in which the application for licensure of an establishment to manufacture the drug is approved by the U.S.F.D.A.
To be eligible for the credit, more than 50% of the research and development costs for the drug must have been incurred in Massachusetts.
Life Science Company Credits - Refundable Amount
There are different credits which the Massachusetts Life Sciences Center, with the approval of the Secretary of Administration and Finance, may authorize a taxpayer to have refunded in lieu of carrying forward such credit to a future year.
- If a life sciences ITC exceeds the tax otherwise due under the corporate excise, as applicable, 90% of the balance of such credit may, at the option of the taxpayer and to the extent authorized pursuant to the Life Sciences Tax Incentive Program, be refundable to the taxpayer for the tax year in which the qualified property giving rise to such credit is placed in service. If such refund is elected by the taxpayer, then the carryover provisions for this credit that would otherwise apply shall not be available.
- Taxpayers may use the FDA user fees credit to their tax to zero. To the extent authorized pursuant to the Life Sciences Tax Incentive Program, 90% of the balance of credit remaining is refundable. The deduction otherwise allowable for user fees qualifying for the credit is disallowed.
- Unlike the regular research credit, as amended by the new subsection (j) of section 38M, described above, the new life sciences research credit under M.G.L. Ch. 63, sec. 38W is not refundable.
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
Earned Income Credit
Unlike part-year residents, nonresidents must have Massachusetts source income in order to claim the Massachusetts EIC. The credit applies only with respect to that portion of earned income of nonresidents that is derived from Massachusetts sources. The credit is limited to 15 percent of the federal credit multiplied by a fraction the numerator of which is the earned income of the nonresident from Massachusetts sources and the denominator of which is the earned income of the nonresident from all sources. For more information, see:
Flight Crew Members
Massachusetts taxes the following nonresident flight crew members to the extent allowed under federal law:
- nonresident "air carrier" employees who earn more than 50% of their pay in Massachusetts. Employees are deemed to have earned 50% of their pay in a state in which their scheduled flight time in the state is more than 50% of their total scheduled flight time when employed during the calendar year; and
- all other nonresident "flight crew" members who perform services in Massachusetts. Flight crew members are subject to the general rules of Massachusetts taxation for nonresidents, and if subject to tax should allocate and apportion their income according to the general rules at 830 CMR 62.5A.1.
Nonresident Flight Crew Members, Including "Air Carrier" Employees Not Covered by the Federal Limitation - Special Apportionment Rule for Compensation, Effective April, 2008:
Nonresident flight crew members who depart from a Massachusetts airfield and fly in and out of more than one state should allocate, when possible, their income to Massachusetts according to the general rules at 830 CMR 62.5A.1. When flight crew members are unable to establish the exact amount of pay received for services performed in Massachusetts, they should apportion their income to Massachusetts by multiplying the gross income related to their employment, wherever earned, by an apportionment factor, that is, a fraction, the numerator of which is Massachusetts workdays and the denominator of which is total workdays. For more information, see:
830 CMR 62.5A.1(5)
Letter Ruling 08-8
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 2008 tax year, the personal income tax exemptions have increased from $4,125 to $4,400 for single and married filing separately filers, from $6,375 to $6,800 for head of household filers, and from $8,250 to $8,800 for joint filers. For more information, see:
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 2008, the maximum credit allowed for both renters and homeowners is $930.
To be eligible for the credit for the 2008 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2008 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 $49,000 for a single filer who is not the head of a household, $62,000 for a head of household, or $74,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2008, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $793,000. 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 2008 are $220 per month for employer-provided parking and $115 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 2009 That Do Not Pertain to Personal Income Tax in Massachusetts
Federal Bonus Depreciation
Under the Economic Stimulus Act of 2008 (P.L. 110-185), for federal income tax purposes, taxpayers are entitled to an additional depreciation deduction, under I.R.C. § 168(k), in the placed-in-service year equal to 50% of the adjusted basis of "qualified property." The property must be acquired after December 31, 2007 and before January 1, 2009. 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.
For more information, see:
The Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) amended I.R.C. §108(a) by adding an exclusion for indebtedness that is discharged before January 1, 2010 and is qualified principal residence indebtedness. The Economic Stabilization Act of 2008 extended this exclusion until January 1, 2013. Massachusetts does not adopt this exclusion or the extension because they were enacted after January 1, 2005.