Below you will find brief descriptions of major tax law changes for 2014 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- Brownfields Credit
- Certified Housing Development Tax Credit
- Community Investment Credit
- Earned Income Tax Credit
- Economic Development Incentive Program Credit (EDIPC)
- Employer Wellness Program Credit
- Extensions Related to DOR Electronic System
- Farming and Fisheries Tax Credit
- Health Insurance, Massachusetts Interaction with New Federal Penalty
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2014
- Health Savings Accounts
- Historic Rehabilitation Credit
- Real Estate Tax Credit for Persons Age 65 and older (Circuit Breaker)
- Tax Rates
- Transportation Fringe Benefits
Below you will find brief descriptions of Massachusetts Form Changes
Section 179 Expenses
Effective for tax years beginning in 2014, the dollar limitation for an election under I.R.C. § 179 to expense property in its initial year has been decreased to $25,000, and the I.R.C. § 179 overall investment phase-out threshold has been reduced to $200,000. Massachusetts adopts these changes because I.R.C. § 179 is a trade or business expense deduction, which is 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:
Certified Housing Development Tax Credit
Pursuant to the Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Sections 45 - 48, 60 - 62, 122 and 125, effective for tax years beginning on or after January 1, 2015, the annual cap on the amount of credit that may be awarded has been increased from $5 million to $10 million. The annual cap for the certified housing development tax credit is part of an over-all cap imposed on the Economic Development Incentive Program credit authorized pursuant to G.L. c. 62, 6(g); G.L. c. 63, 38N. The annual cap is reduced from $10 million back to $5 million for tax years beginning on or after January 1, 2019. For more information, see:
Community Investment Credit
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
Earned Income Credit
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:
Economic Development Incentive Program Credit (EDIPC)
Pursuant to the Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Sections 41 and 55, effective for tax years beginning on or after January 1, 2015, the EDIP credit provisions have been expanded to include “certified job creation projects.” The amount of the credit awarded may be up to $1,000 per job created (up to $5,000 in a Gateway Community or within a city or town whose average seasonally adjusted unemployment rate, as reported by the executive office of labor and workforce development, is higher than the average seasonally adjusted unemployment rate of the commonwealth. The total award per project may not exceed $1,000,000. The credit for a certified job creation project is allowed only for the year subsequent to that in which the jobs are created. For more information, see:
Employer Wellness Program Credit
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:
105 CMR 216.000, 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:
Farming and Fisheries Tax Credit
The Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Section 50, creates a small farms and fisheries tax credit effective for tax years beginning on or after January 1, 2015. The new credit applies to personal income taxpayers who are primarily engaged in agriculture, farming or commercial fishing. The amount of the credit is 3% of the cost or other basis for federal income tax purposes of qualifying property acquired, constructed or erected during the tax year. Qualifying property is defined as tangible personal property and other tangible property including buildings and structural components thereof which are located in Massachusetts, used solely in farming, agriculture or fishing, and are depreciable with a useful life of at least 4 years. The Act allows the same credit to lessees, and there is a recapture provision. For more information, see:
Health Insurance, Massachusetts Interaction with New Federal Penalty
For months beginning after December 31, 2013, the federal Affordable Care Act requires that for each month of the taxable year, a nonexempt individual must have minimum essential coverage or pay a shared responsibility payment. A taxpayer’s liability for the shared responsibility payment for a month must be reported on the taxpayer’s federal income tax return for the taxable year that includes any months of noncompliance.
For tax years beginning on or after January 1, 2014, an individual who does not have health insurance meeting both the Massachusetts standard of creditable coverage and the federal standard of minimum essential coverage may be subject to both (1) the Massachusetts penalty, and (2) the federal shared responsibility payment. However, in the circumstance where a taxpayer is subject to both the Massachusetts penalty and the federal shared responsibility payment, the amount of the taxpayer’s Massachusetts penalty is reduced to account for payment of a federal shared responsibility payment. If the federal shared responsibility payment is greater than the amount that the taxpayer would owe as the Massachusetts penalty, the Massachusetts penalty is reduced to zero. For more information, see:
830 CMR 111M.2.1
TIR 14-3 (updates and replaces TIR14-1)
Health Care Information – Including Schedules, Instructions and Worksheets
Health Insurance, Penalty for Failure to Purchase - Tax Year 2014
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 2014, 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 14-3 (updates and replaces TIR 14-1)
Health Care Information – Including Schedules, Instructions and Worksheets
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 2014, the maximum annual aggregate contribution is equal to $3,300 for an individual plan or $6,550 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 2014, the maximum annual aggregate contribution for an individual age 55 or older is equal to $4,300 for an individual plan or $7,550 for a family plan. For more information, see:
Historic Rehabilitation Credit
The Fiscal year 2015 Budget extends the Massachusetts Historic Rehabilitation Tax Credit, including the $50 million annual limit, for an additional five years from December 31, 2017 to December 31, 2022.
The Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Section 53 amends MGL, Chapter 62, Section 6J(b)(1)(i), which provides that a taxpayer who acquires a qualified historic structure is allowed to receive any tax credits for qualified rehabilitation expenditures previously awarded to the transferor of the qualified historic structure if certain criteria is met: (A) the rehabilitation was not placed in service by the transferor; (B) no credit has been claimed by anyone other than the acquiring taxpayer as verified by the Department of Revenue to the Historical Commission; (C) the taxpayer completes the rehabilitation and obtains certification from the Historical Commission; and, (D) the taxpayer complies with all other requirements under the Historic Rehabilitation Tax Credit statute and related regulations and rules. In the case of a multi-phase project, tax credits may be transferred for any phase that meets the criteria in subsections (A) through (D). This change is effective August 13, 2014. For more information, see:
Draft TIR 14-11
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 2014, the maximum credit allowed for both renters and homeowners is $1,050.
To be eligible for the credit for the 2014 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2014 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 $56,000 for a single filer who is not the head of a household, $70,000 for a head of household, or $84,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2014, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $691,000. 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 5.25 percent tax rate on most classes of taxable income is decreased to 5.20 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:
Transportation Fringe Benefits
Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2014 is $250 per month for employer-provided parking and $130 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 the combined transit pass and commuter highway vehicle transportation benefits to equal the exclusion amount for the employer-provided parking benefit for both the 2012 and 2013 tax years. This provision expired on December 31, 2013. Therefore, for tax year 2014 the federal monthly exclusion amounts for transportation benefits are calculated based on IRC § 132(f) as it appeared in the January 1, 2005 Code, and such federal amounts are $250 per month for employer-provided parking and $130 per month for combined transit pass and commuter highway vehicle transportation benefits that are a reduction in salary.
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
Massachusetts Form Changes
Federal Adjusted Gross Income
Effective for tax years beginning in 2014, taxpayers are required to include the amount of federal adjusted gross income that is reported either on U.S. 1040, line 37; 1040A, line 21; 1040EZ, line 4. This amount is for informational purposes only and in many instances cannot be reconciled with computed Massachusetts adjusted gross income primarily because of the differences in the definition of “gross income” and in “allowable adjustments to gross income”:
- Federal gross income includes items of income that are excluded from Massachusetts gross income, e.g. interest income from certain U.S. obligations, pension income from Massachusetts and U.S. government contributory, social security and Tier I railroad retirement benefits etc.;
- Federal gross income excludes items of income that are included in Massachusetts gross income, e.g. interest income from state obligations, other than Massachusetts, earned income from foreign sources excluded under I.R.C. § 911, etc.; and
- Massachusetts adjusted gross income does not include certain federal adjustments allowed to compute federal adjusted gross income.