Below you will find brief descriptions of major tax law changes for 2011 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- Applications for Abatements and Refunds
- Brownfields Credit
- Certified Housing Development Credit
- Conservation Land Tax Credit
- Dairy Farmer Tax Credit
- Earned Income Tax Credit (EITC)
- Electronic Filing and Payment Requirements
- Employer-Provided Health Insurance Coverage for an Employee's Child
- Extensions Relating to Storms and Tornados as of June 1, 2011
- Extensions Relating to Tropical Storm Irene
- Failure to File Returns, Three-Year Look-back Period for Voluntary Disclosure
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2011
- Health Savings Accounts
- Human Organ Donation Expense
- Income Tax Paid to Another Jurisdiction Credit - Mandatory Payments
- IRA, Conversion of a Traditional IRA to a Roth IRA Completed in 2010
- IRA Distributions for Charitable Purposes
- Life Science Company Credits - Jobs Credit
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
- Small Business Stock, Capital Gains Tax Rate
Below you will find brief descriptions of federal tax law changes for 2011 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Federal Bonus Depreciation (IRS update only)
- Mortgage Forgiveness (IRS update only)
- Transportation Fringe Benefits
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:
Chapter 68 of the Acts of 2011 made statutory changes applicable to requests for refund and applications for abatement filed on or after July 1, 2011; these amendments, however, do not apply with respect to tax periods where the statute of limitations for refund or abatement, as applicable, had expired prior to July 1, 2011.
Requests for abatements may be submitted in writing at any time:
- within 3 years from the date of filing the return or due date, whichever is later,
- within 2 years from the date the tax was assessed or deemed to be assessed, or
- within 1 year from the date that the tax was paid, whichever is later.
Requests for refunds may be made:
- no return is required within 2 years from the time the tax was paid;
- required return was timely filed: within the period permitted for abatement for that return;
- required return has not been timely filed: by filing the overdue return within 3 years from the due date of the return, taking into account any extension of time for filing the return filed, within 2 years of the date that the tax was paid, whichever is later.
Limitations on the Amount of a Refund Resulting from an Abatement:
Where a refund or credit results from an abatement, the amount of such refund or credit is limited to the amount paid, or deemed paid pursuant to section 79, within 3 years of the date that the application for abatement is filed, taking into account any extension of time for filing the return.
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 August 5, 2013. For more information, see:
Certified Housing Development Credit
An Act Relative to Economic Development Reorganization (St. 2010, c. 240) has established the Certified Housing Development Program by adding G.L. c. 40V. Effective January 1, 2011, a new tax credit is available to Individuals or entities for certain qualified rehabilitation expenditures with respect to a certified housing development project. The credit is available to a taxpayer only to the extent awarded by the Massachusetts Department of Housing and Community Development (DHCD) as established pursuant to G.L. c. 23B. The DHCD may award a taxpayer a credit of up to ten percent of the costs of qualified substantial rehabilitation expenditures of the market rate units within the certified housing development projects. For more information, see:
Conservation Land Tax Credit
Per Sections 1 - 4 of Chapter 509 of the Acts of 2008, effective for taxable years beginning on or after January 1, 2011, a tax credit is allowed for qualified donations of certified land to a public or private conservation agency. The credit is equal to 50% of the fair market value of the qualified donation not to exceed $50,000. This credit is available to both individuals and corporations and is refundable but not transferable. For more information, see:
830 CMR 62.6.4
Dairy Farmer Tax Credit
When the U.S. Federal Milk Marketing Order price drops below a trigger price anytime during the taxable year, taxpayers are entitled to the dairy farmer credit.
Per Chapter 68 of the Acts of 2011, the Department of Food and Agriculture regulations for the implementation of this credit will provide that when the Massachusetts Board of Food and Agriculture determines that an error has been made in calculating the trigger price or in reporting or collecting data used in the calculation of the trigger price or the credit, the Commissioner of Agricultural Resources will recalculate, with or without amendments, the trigger price or tax credit. For more information, see:
The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or “ARRA”) temporarily increased the beginning and end points of the earned income tax credit (EITC), increased the credit for three or more children and made other taxpayer beneficial changes, with changes set to expire December 31, 2010. For federal income tax purposes, the Tax Relief Act of 2010 (P.L. 111-132) extends the enhanced EITC credit for two years, through December 31, 2012. 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 the amount the taxpayer receives federally under IRC sec. 32. For more information, see:
As of January 1, 2012, income tax preparers must file all Massachusetts personal income tax returns (i.e., Forms 1 and 1-NR-PY) electronically unless the preparer reasonably expects to file 10 or fewer original Massachusetts Forms 1 and 1-NR-PY during the calendar year. Under previously issued TIR 04-30, the Commissioner required income tax return preparers who completed 100 or more original Massachusetts Forms 1 and 1-NR-PY during the previous calendar year to use electronic means to file all personal income tax returns on or after January 1, 2005.
A tax return preparer who is over the electronic filing threshold announced here is not, however, required to file a return electronically as to a taxpayer who has specifically directed on her return that the return is not to be filed by electronic means, as specified in TIR 04-30. DOR may impose a further requirement on practitioners who are over the electronic filing threshold and who are filing paper returns. These practitioners may be required to obtain taxpayer signatures on a separate form, as described in TIR 05-22, that directs the practitioner to file a paper tax return. Practitioners subject to this requirement must maintain this acknowledgement and produce it for DOR upon request. For more information see:
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:
Extensions Relating to Storms and Tornados of June 1, 2011
The due date for certain returns and tax payments required from affected taxpayers will be extended until August 8, 2011, consistent with the guidance stated in the IRS Release. This extension applies to most tax returns and tax payments, including estimated tax payments that either have an original or extended due date occurring between June 1, 2011 and August 8, 2011. On June 15, 2011, the President of the United States declared a disaster area for certain counties in central Massachusetts – specifically Hampden and Worcester – due to severe storms and tornadoes that struck the area on June 1, 2011. For example, this extension applies to the June 15 deadline for making estimated tax payments. Also, the extension applies to filing corporate excise or unrelated business income tax returns in the instance of a corporation or non-profit corporation with a fiscal year end that has a filing due date within the extension period, estate and trust income tax returns, estate tax returns, partnership returns, and S corporation returns, as well as payments that are due with such returns. For more information, see:
The due date for certain returns and tax payments required from affected taxpayers will be extended until October 31, 2011, consistent with the guidance stated in the IRS Release. This extension applies to most tax returns and tax payments, including estimated tax payments that either have an original or extended due date occurring between August 27, 2011 and October 31, 2011. As of September 9, 2011, the President of the United States declared a disaster area for certain counties and municipalities in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Puerto Rico, and Vermont due to Tropical Storm Irene that struck those areas in late August, 2011. For Massachusetts in particular, the Massachusetts counties of Berkshire and Franklin have been declared disaster areas. For example, this extension applies to the June 15 deadline for making estimated tax payments. Also, the extension applies to filing corporate excise or unrelated business income tax returns in the instance of a corporation or non-profit corporation with a fiscal year end that has a filing due date within the extension period, estate and trust income tax returns, estate tax returns, partnership returns, and S corporation returns, as well as payments that are due with such returns. For more information, see:
Failure to File Returns, Three-Year Look-back Period for Voluntary Disclosure
Limitations Period for Taxpayers Failing to File Tax Return for Tax Years Beginning January 31, 2011: to encourage voluntary compliance, the Department limits assessments to the three most recent tax years in cases where nonresident individual taxpayers and foreign corporations or other foreign entities voluntarily disclose their non-filing. This three-year look-back period will commence with the final day of the most recent taxable period for which the taxpayer was required to file a return, as determined (without regard to extensions) as of the date the taxpayer or its representative first contacts the Department in writing, whether anonymously or not. The Commissioner will assess the taxpayer for all taxable periods ending during the three-year period described.
Prior to January 31, 2011, three-year look-back period commenced with the final day of the most recent taxable period for which the taxpayer was required to file a return, as determined (without regard to extensions) at the time the taxpayer voluntarily filed some or all of its overdue returns. For more information, see:
Health Insurance, Penalty for Failure to Purchase - Tax Year 2011
Pursuant to G.L. c. 111M, s. 2, the Massachusetts Health Care Reform Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2011, 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
Schedule HC Instructions, including Schedule HC and Health Care Penalty Worksheet
Commonwealth Health Connector
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 2011, 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 2011, 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:
Pursuant to Chapter 68 of the Acts of 2011, effective for tax years beginning on or after January 1, 2012, individuals who donate organs to other persons for human organ transplantation may claim an amount equal to the following expenses incurred and related to the organ donation: (i) travel expenses; (ii) lodging expenses; and (iii) lost wages not to exceed $10,000. “Human organ” means all or parts of human bone marrow, liver, pancreas, kidney, intestine or lung. Part-year and nonresidents are not eligible to claim this deduction. For more information, see:
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, 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
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): for federal income tax purposes, unless a taxpayer elected to include the applicable conversion amount in gross income in 2010, none of the amount from such conversion was 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.
Per An Act Making Appropriations for the Fiscal Year 2012… (St. 2011, c 68), for taxable years beginning on or after January 1, 2011, a taxpayer, to the extent authorized by the Life Sciences Tax Incentive Program, may be allowed a refundable jobs credit against the tax liability imposed under G.L. c. 62, the personal income tax, or G.L. c. 63, the corporate excise. A taxpayer claiming a life sciences refundable jobs credit must commit to the creation of a minimum of 50 net new permanent full-time positions in Massachusetts.
The amount of life sciences jobs credit allowed to a taxpayer will be determined by the Massachusetts Life Sciences Center in consultation with the Department of Revenue.
If a life sciences jobs credit claimed by a taxpayer exceeds the tax otherwise due under the personal income tax or the corporate excise, as applicable, 90 percent of the balance of such credit may, to the extent authorized by the life sciences tax incentive program, be refundable to the taxpayer. Excess credit amounts shall not be carried forward to subsequent taxable years. For more information, see:
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 2011, the maximum credit allowed for both renters and homeowners is $980.
To be eligible for the credit for the 2011 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2011 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 $52,000 for a single filer who is not the head of a household, $65,000 for a head of household, or $78,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2011, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $729,000. For more information, see:
Small Business Stock, Capital Gains Tax Rate
Under "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:
Major Federal Tax Law Changes for 2011 That Do Not Pertain to Personal Income Tax in Massachusetts
Federal Bonus Depreciation
For federal income tax purposes, the Tax Relief Act of 2010 expands the additional first-year depreciation deduction (“bonus depreciation”) under IRC sec. 168(k) to equal 100% of the cost of “qualified property;” the property must be placed in service after September 8, 2010, and before January 1, 2012. Under 2002 legislation, Massachusetts decoupled from bonus depreciation allowed under IRC sec. 168(k), as amended and in effect for the current year. Therefore, Massachusetts does not adopt this additional depreciation.
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.
Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2011 is $230 per month for employer-provided parking and $120 per month for combined transit pass and commuter highway vehicle transportation benefits.
The federal exclusion amounts for 2011 are $230 per month for employer-provided parking, and $230 per month for combined transit pass and commuter highway vehicle transportation benefits. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312 or “2010 Tax Relief Act”) temporarily extends the combined transit pass and commuter highway vehicle transportation benefits to $230 per month, effective for tax year 2011.
Massachusetts adopts the federal exclusion under the Internal Revenue Code, as amended and in effect on January 1, 2005. Any federal tax law changes to these exclusions will not be automatically adopted. Massachusetts will continue to follow the Code of January 1, 2005. Massachusetts does, however, adopt the IRS's Revenue Procedure/inflation adjustment formula used in determining annual exclusion amounts. For more information, see: