Below you will find brief descriptions of major tax law changes for 2010 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- Brownfields Credit
- Designated Roth Accounts in Certain Retirement Plans (401(k), 403(b) and 457(b)
- Earned Income Tax Credit
- Economic Development Incentive Program Credit (EDIPC)
- Employer-Provided Health Insurance Coverage for an Employee's Child
- Federal or State Change Failure to Report Penalty
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2010
- Health Savings Accounts
- Historic Rehabilitation Tax Credit Extension
- Income Tax Paid to Another Jurisdiction Credit - Mandatory Payments
- Installment Sales, Large Sales Addition to Tax
- IRA, Conversion of a Traditional IRA to a Roth IRA in 2010
- IRA Distributions for Charitable Purposes
- Low Income Housing Credit
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
- Retirement Planning Services
- Small Business Stock, Capital Gains Tax Rate
- Use Tax on Out-of-State Purchases
Below you will find brief descriptions of federal tax law changes for 2010 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 Jobs Act of 2010 (P.L.111-240), effective for tax years beginning in 2010 and 2011, the I.R.C § 179 election to expense property in its initial year has increased from $250,000 to $500,000. The I.R.C. § 179 overall investment phase-out threshold has also increased from $800,000 to $2,000,000. Further, the act allows up to $250,000 of specified "qualified real property" to qualify for the expense election in 2010 and 2011. Massachusetts adopts these changes because I.R.C. § 179 is a trade or business expense deduction; these deductions are adopted by Massachusetts on a current Code basis. For more information see:
An Act Relative to Economic Development Reorganization (St. 2010, c. 240), Sections 113 and 114 extend the dates for the credits as follows: the environmental response and removal costs incurred between August 1, 1998 and January 1, 2014 are eligible for the credit, provided that the taxpayer commences and diligently pursues an environmental response action before the deadline of August 5, 2013. For more information, see:
Designated Roth Accounts in Certain Retirement Plans (401(k), 403(b) and 457(b)
The Small Business Jobs Act of 2010 (PL 111–240) extends the Roth concept to 457(b) plans. For taxable years beginning after December 31, 2010, participants in government-sponsored plans may be given the opportunity to treat elective deferrals as Roth contributions.
A designated Roth account is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans that permit such plans to accept designated Roth contributions and certain rollovers. It is a separate account that holds designated Roth contributions. If a plan adopts this feature, employees can designate some or all of their elective contributions (also referred to as elective deferrals) as designated Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions.
The amount contributed to a designated Roth account is includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free. The employer must separately account for all contributions, gains and losses to this designated Roth account until this account balance is completely distributed. For more information, see:
Earned Income Tax Credit
The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") amends I.R.C. § 32 to increase the earned income tax credit percentage for families with three or more qualifying children to 45% for 2009 and 2010. The ARRA also increases the threshold phase-out amounts for married couples filing joint returns to $5,000 above the threshold phase-out amounts for singles, surviving spouses, and heads of household for 2009 and 2010. The Massachusetts earned income tax credit equals 15% of the federal earned income tax credit received by the taxpayer for the taxable year. Therefore, Massachusetts allows 15% of whatever the taxpayer receives federally under I.R.C. § 32. The effect is that Massachusetts will allow a larger credit for 2009 and 2010 due to the ARRA and its increases to the federal earned income tax credit for those years. For more information, see:
Economic Development Incentive Program Credit (EDIPC)
Chapter 166 of the Acts of 2009 made significant changes to the Economic Development Incentive Program (EDIP) established pursuant to M.G.L. c. 23A. Specifically, the Economic Development Incentive Program Credit (EDIPC) is available for projects certified on or after January 1, 2010.
Taxpayers who participate in a "certified project" as defined in M.G.L. c. 23A, s. 3A are allowed a credit against their tax liabilities up to a specified percentage of the cost of qualifying property. For projects certified on or after January 1, 2010, the EDIPC is available only to the extent awarded by the Economic Assistance Coordination Council (EACC.)
The term "certified project" is defined as either:
- an "expansion project" located in an "economic opportunity area" as defined in Chapter 23A;
- an "enhanced expansion project" located anywhere in Massachusetts; or
- a "manufacturing retention project" located in a "gateway municipality" as defined in Chapter 23A."
- For certified expansion projects, the credit awarded may be up to ten percent of the cost of qualifying property;
- For certified enhanced expansion project, the credit awarded may be up to ten percent of the cost of qualifying property;
- For certified manufacturing retention projects, the credit awarded may be as high as forty percent of the cost of such property. Upon filing a return and complying with any additional procedures, any credit that exceeds the excise for the taxable year will be refunded to the taxpayer.
Effective for taxable years beginning on or after January 1, 2010, Massachusetts follows the federal treatment of IRC §§ 105 and 106 for exclusions from gross income for employer-provided health care benefits. The general effect of the Massachusetts change is to conform to the federal income exclusion rules for health care benefits that are in effect for each year, notwithstanding the general Massachusetts tie-in to federal income and exclusion rules as of January 1, 2005. Thus, to the extent employer-provided health care benefits are excluded from federal gross income, such amounts are likewise excluded from Massachusetts gross income. For more information see:
Federal or State Change Failure to Report Penalty
Under Chapter 131 of the Acts of 2010, any person or estate failing to report a federal change or other state change shall be assessed a penalty of 10 percent of the additional tax found due and such penalty shall become part of the additional tax found due. For reasonable cause shown, the commissioner may, in the commissioner's discretion, abate the penalty in whole or in part. In cases where the tax due is greater than $1,000, this change will increase the amount of the applicable penalty. The new penalty calculation will be applied to penalty assessments dated on or after July 1, 2010.
Health Insurance, Penalty for Failure to Purchase - Tax Year 2010
Pursuant to G.L. c. 111M, section 2, the Massachusetts Health Care Reform Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2010, individuals must be enrolled in health insurance policies that meet minimum creditable coverage standards defined in regulations adopted by the Commonwealth Health Insurance Connector Authority (the Connector). Individuals who are deemed able to afford health insurance but fail to comply are subject to penalties for each month of non-compliance in the tax year (provided that there is no penalty in the case of a lapse in coverage of 63 consecutive days or less). 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 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
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 2010, the maximum annual aggregate contribution is equal to $3,050 for an individual plan or $6,150 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 2010, the maximum annual aggregate contribution for an individual age 55 or older is equal to $4,050 for an individual plan or $7,150 for a family plan. For more information, see:
Historic Rehabilitation Tax Credit Extension
Under Chapter 131 of the Acts of 2010, Section 35 extends the Massachusetts Historic Rehabilitation Tax Credit for an additional six years to December 31, 2017. The credit was previously due to expire after December 31, 2011. For more information, see:
830 CMR 63.38R.1
Mandatory contributions imposed by the Rhode Island Temporary Disability Insurance Act (the “Act”) qualify as income taxes paid to the state of Rhode Island for the purposes of the OJ credit. Letter Ruling 77-10, in which the Commissioner ruled that payments made under the Rhode Island Temporary Disability Insurance Act were not the type of income taxes referred to in G.L. c. 62, § 6(a) has been revoked.
To recalculate the credit for tax years within the statute of limitations, the Rhode Island State Disability Insurance (RISDI) should be included as part of the total tax paid to Rhode Island; the computation of the credit is based on comparing the Massachusetts income tax on income reported to Rhode Island to the actual tax plus any RISDI paid; the credit is limited to the smaller of these two amounts. For more information, see:
Revised DD 12-1
Chapter 131 of the Acts of 2010, Section 46 provides for an increase in tax, consistent with federal law, on certain taxpayers who defer payment of income tax through use of the installment sale method. Effective for tax years beginning on or after January 1, 2010, with respect to installment obligations as of the close of the tax year, interest must be paid on Massachusetts deferred tax of certain installment sales.
An addition to tax applies to taxpayers who have deferred the gain, and the tax associated with that gain, on non-dealer installment sales with a sales price of over $150,000 if the aggregate face amount of installment obligations arising during the tax year and outstanding as of the close of the tax year exceeds $5 million. An installment sale addition to tax must also be paid on the deferred gain from the installment sale of timeshares and residential lots if the sale meets certain criteria. For more information, see:
IRA, Conversion of a Traditional IRA to a Roth IRA in 2010
Under the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), taxpayers regardless of income level are allowed to convert traditional IRAs to Roth IRAs per I.R.C. § 408A effective for tax years beginning after December 31, 2009. Previously, only taxpayers with federal adjusted gross incomes of $100,000 or less could exercise this option.
For Roth IRA conversions completed in 2010, under IRC § 408A(d)(3), unless a taxpayer elects to include the applicable conversion amount in gross income in 2010, none of the amount from such conversion is includible in income in 2010; half of the gross income is includible in 2011 and half in 2012.
Massachusetts generally follows the provisions of the Code as of January 1, 2005, with certain exceptions. Among the Code sections that G.L. c. 62, section 1(c) includes as exceptions and adopts based on the Code as amended and in effect for the taxable year is I.R.C. § 408A.
For Massachusetts purposes, unless a taxpayer elects for federal purposes to include the applicable conversion amount in gross income in 2010, none of the amount from such conversion is includible in Massachusetts gross income in 2010; the taxpayer must include the applicable Massachusetts gross income from the conversion ratably in 2011 and 2012.
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. The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) extended the exclusion for distributions made in tax years 2008 and 2009. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) retroactively extends the exclusion for distributions made in tax years 2010 and 2011.
The exclusion applies to:
- distributions made on behalf of taxpayers who are at least 70½ on the date of distribution in 2010 or 2011;
- 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.
Low Income Housing Credit
Under An Act Relative to Economic Development Reorganization (St. 2010, c. 240), Sections 116 and 117, effective August 1, 2010, the Department of Housing and Community Development may grant state low income housing credits, within the existing $10 millions annual cap, to otherwise eligible projects that do not receive a federal low income housing credit. For more information, see:
Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
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 2010, the maximum credit allowed for both renters and homeowners is $970.
To be eligible for the credit for the 2010 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2010 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 $51,000 for a single filer who is not the head of a household, $64,000 for a head of household, or $77,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2010, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $764,000. For more information, see:
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 I.R.C. § 401(a) plans, annuity plans, government plans, I.R.C. § 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:
Small Business Stock, Capital Gains Tax Rate
Per An Act Relative to Economic Development Reorganization (St. 2010, c. 240), Section 111, effective for tax years beginning on or after January 1, 2011, gains derived from the sale of investments which meet certain requirements are taxed at a rate of 3% instead of 5.3%. In order to qualify for the 3% rate, investments must have been made within five years of the corporation's date of incorporation and must be in stock that generally satisfies the definition of "qualified small business stock" under I.R.C. § 1202 (c), other than the requirement that the stock be stock of a C corporation. In addition, the stock must be held for three years or more and the investments must be in a corporation which (a) is domiciled in Massachusetts, (b) is incorporated on or after January 1, 2011, (c) has less than $50 million in assets at the time of investment, and (d) complies with certain of the "active business" requirements of I.R.C. § 1202 of the Internal Revenue
To be eligible as "qualified small business stock" under I.R.C. § 1202(c), the stock must be acquired by the taxpayer at its original issue (directly or through an underwriter) in exchange for money, property, or as compensation for services provided to the corporation. During substantially all of the taxpayer's holding period, at least 80 percent of the value of the corporation's assets must be used in the active conduct of one or more qualified businesses. For more information, see:
Use Tax on Out-of-State Purchases
Effective August 1, 2009, the use tax increased from 5 percent to 6.25 percent. The Massachusetts use tax is 6.25 percent of the sales price or rental charge of tangible personal property on which no Massachusetts sales tax was paid, where the property was purchased to be used, stored or consumed in the Commonwealth. For more information, see:
Major Federal Tax Law Changes for 2010 That Do Not Pertain to Personal Income Tax in Massachusetts
Federal Bonus Depreciation
Under the Small Business Jobs Act of 2010 (P.L. 111-240), 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 placed in service on or before December 31, 2010, and for certain longer production period property placed in service on or before December 31, 2011. 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:
Transportation Fringe Benefits
Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2010 is $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.
The federal exclusion amounts are:
- for the months of March through December, 2009 and all of tax year 2010 - The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") temporarily increases the employer-provided combined transit pass and commuter highway vehicle transportation benefits to $230 per month.
Massachusetts follows the January 1, 2005 Code and does not adopt the temporary increased exclusion allowed by ARRA for employer-provided combined transit pass and commuter highway vehicle transportation benefits. Massachusetts does, however, adopt the IRS's Revenue Procedure/inflation adjustment formula used in determining annual exclusion amounts. For more information, see: