Below you will find brief descriptions of major tax law changes for 2013 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- Brownfields Credit
- Community Investment Credit
- Domicile, Charitable Deductions Not Considered in Determining Domicile
- Earned Income Tax Credit
- Employer Wellness Program Credit
- Extensions Related to DOR Electronic Filing System
- Extensions Relating to Taxpayers Affected by the Boston Marathon Explosions
- Extensions Relating to Farmers and Fisherman
- Extensions Relating to Hurricane Sandy
- Health Insurance, Penalty for Failure to Purchase – Tax Year 2013
- Health Savings Accounts
- Home Office Deduction, Optional Safe Harbor Method
- IRA Distributions for Charitable Purposes
- Lottery or Wagering Winnings, Withholdings
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
- Same-Sex Joint Filers
- Tax Rates
Below you will find brief descriptions of federal tax law changes for 2013 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
Under the American Taxpayer Relief Act of 2012 (P.L. 112-240), effective for tax years beginning in 2012 and 2013, the dollar limitation for an election under I.R.C. § 179 to expense property in its initial year is $500,000, and the I.R.C. § 179 overall investment phase-out threshold is $2,000,000. 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:
The Fiscal Year 2014 Budget extends the Brownfields Credit, previously scheduled to expire on August 5, 2013, for five additional years. Taxpayers subject to the personal income tax or corporate excise under General Laws chapters 62 and 63 and tax-exempt organizations within the meaning of I.R.C. § 501(c) are allowed a transferable Brownfields Credit for incurring eligible costs to remediate a hazardous waste site on property used for business purposes and located within an economically distressed area.
The credit may be either 50% or 25% of the “net response and removal costs” as that term is defined in G.L. c. 21E, § 2, depending upon whether an activity or use limitation has been imposed. To qualify, the taxpayer must “commence and diligently pursue” the relevant environmental response action(s) on or before August 5, 2018. Also, the net response and removal costs must be incurred prior to January 1, 2019. For more information, see:
Pursuant to St. 2012, c. 238, and codified at G.L. c 62, § 6M and G.L. c. 63, § 38EE, a Community Investment Tax Credit is allowed for tax years beginning on or after January 1, 2014 to individuals or entities subject to taxation under MGL, chapters 62 and 63 for qualified investments made on or after January 1, 2014. Qualified investments include certain cash contributions made to a community partner or a community partnership fund.
The credit, set to expire December 31, 2019, is equal to 50% of the total qualified investment made by the taxpayer for the taxable year. No credit is allowed to taxpayers that make qualified investments of less than $1,000. In any one taxable year, the total amount of the credit that may be claimed by taxpayers that make qualified investments may not exceed $1,000,000. The credit is allowed for the taxable year in which the qualified investment is made. The Community Investment Tax Credit has been made refundable but not transferable. Alternatively, the credit may be carried forward 5 years, but for taxpayers electing to carry forward credit balances, the option to claim credit refunds does not apply. The total cumulative value of all the credits shall not exceed $3,000,000 in taxable year 2014 and $6,000,000 in each of taxable years 2015 through 2019. For more information, see:
830 CMR 62.6M.1
Under An Act Making Appropriations for the Fiscal Year 2013 (Fiscal Year 2013 Budget), effective July 8, 2012, charitable contributions in the form of cash or property that qualify for federal income tax deductions cannot be examined to determine a person’s domicile in Massachusetts or any other jurisdiction.
Under I.R.C. § 170(a), qualifying charitable contributions include gifts of cash or property. Under General Laws c. 62, § 1(f), as amended, contributions of cash or property to any organization which is exempt from taxation under I.R.C. § 501(c)(3) are excluded from a determination of domicile to the extent that such contributions qualify for a federal income tax deduction under I.R.C. § 170(a). For more information, see:
For federal income tax purposes, the American Taxpayer Relief Act (P.L. 112-240) makes permanent or extends through 2017 enhancements to the earned income tax credit. 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 I.R.C. sec. 32. For more information, see:
Pursuant to the Act Improving the Quality of Health Care and Reducing Costs through Increased Transparency, Efficiency and Innovation (Health Care Act), effective for tax years beginning on or after January 1, 2013, a Massachusetts business that employs 200 or fewer workers may qualify for a tax credit for up to 25% of the cost of implementing a “certified wellness program” for its employees. A taxpayer seeking to claim the credit must apply to the Department of Public Health (DPH) for certification of its wellness program. DPH will approve a dollar amount of credit for a qualifying taxpayer and issue a certificate to be provided in connection with filing a tax return in order to claim the credit. The amount of the credit that may be claimed by a taxpayer cannot exceed $10,000 in any tax year. The credit is set to expire on December 31, 2017. For more information, see:
, Massachusetts Wellness Tax Credit Incentive
Extensions Related to DOR Electronic Filing System
The Massachusetts Department of Revenue will grant automatic extensions of time until April 18, 2014 for Massachusetts personal income taxpayers to file their 2013 personal income tax returns and to make the accompanying tax payments. Recent technical issues in the Department’s electronic filing systems may have affected the ability of personal income taxpayers to timely file and pay their taxes. For more information, see:
The Massachusetts Department of Revenue will grant automatic extensions of time until July 15, 2013 for certain tax filings and payments otherwise required to be made by certain nonresident individual and business taxpayers and other affected taxpayers, on April 16, 2013.
“Affected taxpayers” are all individual taxpayers living in Suffolk County and all other Massachusetts personal income tax filers and business and corporate taxpayers whose income or corporate excise filings and payments were adversely impacted by the explosions on April 15, 2013. Taxpayers whose filings and payments were adversely impacted by the explosions may include those whose tax preparers or availability of needed records were directly impacted by the explosions. For more information, see:
The Massachusetts Department of Revenue is following the IRS in its treatment of farmers and fishermen as it relates to the penalty for Underpayment of Estimated Income Tax. For the 2012 tax year, farmers or fishermen who miss the March 1, 2013 deadline will not be subject to the penalty if they file and pay by April 16, 2013. This exception to the penalty is explained on Form M-2210. If you qualify for this exception, be sure to include Form M-2210 with your tax return, whether you file electronically or on paper. For more information, see
IRS Notice 2013-5
The Massachusetts Department of Revenue will grant automatic extensions of time until February 1, 2013 for certain tax filings and payments otherwise required to be made by certain nonresident individual and business taxpayers and other affected taxpayers, between October 29, 2012 and January 31, 2013. As of November 3, 2012, the President of the United States declared a disaster area for certain counties and municipalities in Connecticut, New Jersey, New York, and Rhode Island due to Hurricane Sandy which struck those areas in late October, 2012. For more information, see:
Health Insurance, Penalty for Failure to Purchase - Tax Year 2013
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 2013, 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
TIR 13-9 (updates and replaces TIR 13-1)
Health Care Information
Commonwealth Health Connector
Schedule HC (Draft version)
Schedule HC Instructions & Worksheets (Draft version)
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 2013, the maximum annual aggregate contribution is equal to $3,250 for an individual plan or $6,450 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 2013, the maximum annual aggregate contribution for an individual age 55 or older is equal to $4,250 for an individual plan or $7,450 for a family plan. For more information, see:
Home Office Deduction, Optional Safe Harbor Method
I.R.C. §280A(c) allows a deduction for expenses related to certain business use of a home. Effective for tax years beginning 2013, per Rev. Proc. 2013-13, taxpayers may use an optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a home which is $5 per square foot for a maximum of 300 square feet of qualified home office space used, for a maximum yearly deduction of $1,500. Taxpayers using the safe harbor method may deduct certain expenses related to the home (e.g., mortgage interest and real estate taxes) exclusively on their federal Schedule A, Itemized Deductions.
In general, Massachusetts adopts the current federal rules for I.R.C. §280A and the optional safe harbor method allowed by Rev. Proc. 2013-13. Taxpayers who elect to use the safe harbor method of claiming the home office deduction on federal Schedule C, Profit or Loss from Business, line 30,may deduct the same amount, not to exceed $1,500, on Massachusetts Schedule C, Massachusetts Profit or Loss from Business, line 29, “expenses for business use of your home.”
However, like the federal rules, those taxpayers electing the safe harbor method are not allowed to deduct any portion of mortgage interest and real estate taxes for the business use of a residence on their Massachusetts Schedule C. Furthermore, to the extent that taxpayers electing the safe harbor method can deduct mortgage interest and real estate taxes on their federal Schedule A, these amounts are not deductible for Massachusetts purposes, as Massachusetts law does not allow any federal Schedule A deductions for mortgage interest and real estate taxes. For more information, see:
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. Subsequently, the federal exclusion was extended for distributions made in tax years 2008 through 2011. The federal American Taxpayer Relief Act of 2012 (P.L. 112-240) extends the exclusion for distributions made in tax years 2012 and 2013.
The exclusion applies to:
- distributions made on behalf of taxpayers who are at least 70½ on the date of distribution in 2012 or 2013;
- 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.
Lottery or Wagering Winnings, Withholding
Under An Act Establishing Expanded Gaming in the Commonwealth, effective November 22, 2011, payors of Massachusetts lottery or wagering winnings of $600 or greater are required to deduct and withhold Massachusetts personal income tax in an amount equal to five percent of payments made to Massachusetts residents or nonresidents if the winnings are subject to tax under chapter 62, and the payments are subject to withholding under rules described in I.R.C. § 3402, but modified for Massachusetts withholding purposes as follows:
- Payments of winnings of $600 or greater are subject to Massachusetts withholding notwithstanding that higher dollar thresholds for federal withholding are provided in I.R.C. § 3402.
- Payments of winnings of $600 or greater from slot machines, keno, and bingo played at licensed casinos are subject to Massachusetts withholding notwithstanding the exemption that would apply from federal withholding in I.R.C. § 3402.
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 2013, the maximum credit allowed for both renters and homeowners is $1,030.
To be eligible for the credit for the 2013 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2013 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 $55,000 for a single filer who is not the head of a household, $69,000 for a head of household, or $82,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2012, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $700,000. For more information, see:
Beginning May 16, 2004, Massachusetts law permitted same-sex couples to be married. Thus, for Massachusetts personal income tax purposes, same-sex spouses have been entitled to file as married persons, jointly or separately. However, under prior federal law, same sex marriage was not recognized and same-sex couples were required to file as individuals.
Where elements of Massachusetts taxation derive from federal law, such as the definition of gross income, or state deductions that are based on a federal counterpart, same-sex spouses were required to perform special calculations for Massachusetts purposes to adjust the federal return information by taking the different marital status into account to arrive at the proper Massachusetts tax figure.
As a result of the U.S. Supreme Court decision, United States v. Windsor, 133 S. Ct. 2675 (2013), same-sex spouses may, in cases where applicable state law recognizes same-sex marriage, file their federal tax returns as married persons, jointly or separately. For Massachusetts personal income tax purposes, same-sex couples formerly combined two individual federal returns to come up with the Massachusetts figure to enter on the joint Massachusetts return. They will no longer need to do this, and will take the applicable Massachusetts figures directly from their federal form(s), the way other married couples complete their tax returns. For more information, see
M.G.L. Chapter 62, Section 4, establishes the personal income tax rates to be applied against different classes of Massachusetts taxable income. The tax rate on most classes of income is scheduled to decrease in years where the state achieves revenue growth benchmarks set forth by the formula in M.G.L. Chapter 62, Section 4(b).
Accordingly, effective for tax years beginning on or after January 1, 2013, the tax rate on most classes of taxable income remains at 5.25 percent. The tax rate on short-term gains from the sale or exchange of capital assets and on long-term gains from the sale or exchange of collectibles (after a 50 percent deduction) remains at 12 percent. For more information, see:
Major Federal Tax Law Changes for 2013 That Do Not Pertain to Personal Income Tax in Massachusetts
Below you will find brief descriptions of federal tax law changes for 2013 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
Federal Bonus Depreciation
The American Taxpayer Relief Act of 2012 extends the additional first-year depreciation deduction (“bonus depreciation”) under I.R.C. § 168(k) to property placed in service on or after January 1, 2013 and before January 1, 2014. 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.
For more information, see:
Mortgage Forgiveness (IRS update only)
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. Under the federal American Taxpayer Relief Act of 2012 (P.L. 112-240), mortgage forgiveness debt relief on principal residences has been extended until December 31, 2013. Massachusetts does not adopt this exclusion or the extension because they were enacted after January 1, 2005.
Transportation Fringe Benefits
Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2013 is $245 per month for employer-provided parking and $125 per month for combined transit pass and commuter highway vehicle transportation benefits.
The federal exclusion amounts for 2013 are $245 per month for employer-provided parking, and $245 per month for combined transit pass and commuter highway vehicle transportation benefits. In January, 2013, the federal American Taxpayer Relief Act of 2012 (P.L. 112-240) amended I.R.C. §132(f), increasing the federal monthly exclusion amount for combined transit pass and commuter highway vehicle transportation benefits to equal the exclusion amount for employer-provided parking benefit for both the 2012 and 2013 tax years.
Massachusetts adopts this 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