Below you will find brief descriptions of major tax law changes for 2009 pertaining to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Section 179 Expenses
- COBRA Coverage of Unemployed Workers
- Composite Returns for Nonresident Participants
- Dairy Farmer Tax Credit
- Earned Income Tax Credit
- Extension of Time for Certain Tax Filings and Payments For Taxpayers Affected by March 2010 Severe Storms and Flooding
- Federal Change for Voluntary Disclosure of Unreported Offshore Accounts or Assets
- Health Insurance, Penalty for Failure to Purchase - Tax Year 2009
- Health Savings Accounts
- Income Tax Paid to Another Jurisdiction Credit - Mandatory Payments
- IRA Distributions for Charitable Purposes
- Life Science Company Credits
- Military Spouses Residency
- Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker)
- Refundable Credits
- Use Tax on Out-of-State Purchases
Below you will find brief descriptions of federal tax law changes for 2009, many pursuant to The American Recovery and Reinvestment Act (P.L. 111-5 or "ARRA") that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information.
- Abatement for Losses from Criminally Fraudulent Investment Arrangements
- Deferral of Cancellation of Debt Income on Repurchase of Debt (IRS Update Only)
- Federal Bonus Depreciation (IRS Update Only)
- Mortgage Forgiveness (IRS Update only)
- New Car Purchases (IRS Update Only)
- Transportation Fringe Benefit
- Unemployment Benefits (IRS Update Only)
Major Tax Law Changes for 2009 Pertaining to Personal Income Tax in Massachusetts
Section 179 Expenses
Per the American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA"), effective for tax years beginning on or after January 1, 2009, the I.R.C. § 179 election to expense property amount in its initial year has been extended and will remain at $250,000. The I.R.C. § 179 overall investment phase-out-threshold amount has also been extended and will remain at $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:
As a result of An Act Making Appropriations for the Fiscal Year 2010 (St. 2009, c. 27), effective for tax years ending on or after January 1, 2009, Massachusetts conforms to the current Code with regard to the federal exclusion from gross income of the COBRA subsidy under I.R.C. § 139C. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") added new I.R.C. § 139C which provides an exclusion from federal gross income for a 65% subsidy for COBRA continuation premiums for up to 9 months for certain workers who have been involuntarily terminated and for their families. To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009. This subsidy also applies to health care continuation coverage if required by states for small employers. For more information, see:
A pass-through entity may file a composite return on behalf of qualified electing nonresidents reporting and paying income tax on the nonresidents' pro rata or distributions share of Massachusetts source income of the pass-through entity. Recent legislation has expanded composite filing; there is no longer a requirement that composite filing participants have no Massachusetts source income other than their pass-through entity income, and composite returns are now available to other pass-through entities in addition to partnerships. For more information, see:
830 CMR 62.5A.1
Nonresident Composite Return Information
Guide to Taxes
Dairy Farmer 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 as originally enacted was 90% refundable. Effective July 1, 2009, per the Federal American Recovery and Reinvestment Act of 2009, the dairy farmer tax credit is now 100% refundable. The total amount of credits granted cannot exceed $4 million in any year. 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:
The Massachusetts Department of Revenue ("Department") will grant automatic extensions of time until May 11, 2010 for certain tax filings and payments otherwise required to be made by taxpayers between March 12, 2010 and May 10, 2010. On March 29, 2010, the President of the United States declared a disaster area within seven counties in Eastern and Central Massachusetts - specifically, Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester Counties - due to severe storms and flooding that began on March 12, 2010. Following that declaration, the Internal Revenue Service ("IRS") announced extensions of time for certain federal tax filing and payment deadlines. For major categories of income tax filers, the specific relief granted by the Department will generally correspond to that provided and announced by the IRS release. For more information, see:
Federal Change for Voluntary Disclosure of Unreported Offshore Accounts or Assets
US taxpayers are required to annually report their financial interest in, or signature authority over, a financial account that is maintained with a financial institution located in a foreign country if the aggregate value of all such accounts exceeded $10,000 at any time during the year.
Those seeking to take advantage of the voluntary disclosure initiative must pay back-taxes and interest for six years and pay accuracy/delinquency penalties on all six years; they must also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. Persons complying with the voluntary disclosure will avoid any potential criminal prosecution. This reporting requirement is met by filing Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as "FBAR"). This penalty framework is effective until September 23, 2009.
Persons with signature authority over, but no financial interest in, a foreign financial account, and persons with a financial interest in, or signature authority over, a foreign commingled fund, will have until June 30, 2010, to file an FBAR for the 2008 and earlier calendar years with respect to these foreign financial accounts.
If the federal government finally determines that there is a difference from the amount previously reported in the taxable income of a person or estate, the final determination must be reported by such person or estate accompanied by payment of any additional tax due with interest. DOR defines a "federal determination" as including "an agreement between the taxpayer and the Commissioner of Internal Revenue to an assessment of any type of liability, including an accepted offer in compromise on an issue of liability." A "federal determination" is "final" when there is no right of administrative or judicial appeal. Such determination requires a personal income tax filer to report the change in federal taxable income resulting in increased Massachusetts tax liability within one year of the date of notice of the federal government's final determination. A federal change is reported on Form CA-6, Application for Abatement/Amended Return. The failure to do so will trigger additional penalties and interest. For more information, see:
830 CMR 62C.30.1
Health Insurance, Penalty for Failure to Purchase - Tax Year 2009
Pursuant to G.L. c. 111M, § 2, the Massachusetts Health Care Reform Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2009, 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 2009, the maximum annual aggregate contribution is equal to $3,000 for an individual plan or $5,950 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 2009, the maximum annual aggregate contribution for an individual age 55 or older is equal to $4,000 for an individual plan or $6,950 for a family plan. 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 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
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.
Life Science Company Credits
Life Science Company Investment Tax Credit
For taxable years beginning on or after January 1, 2009, a new Investment Tax Credit (ITC) may be available for corporate excise and personal income taxpayers. 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.
Life Science Company FDA User Fees Credit
For taxable years beginning on or after January 1, 2009, a new credit may be available to corporate excise and personal income taxpayers 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.
Military Spouses Residency
The Military Spouses Residency Relief Act (P.L. 111-97) enacted November 11, 2009, prohibits a servicemember's spouse from either losing or acquiring a residence or domicile if such absence or presence in any U.S. tax jurisdiction is solely to be with the servicemember and is in compliance with his or her military orders if the residence or domicile is the same for the servicemember and the spouse. This provision takes effect for tax years beginning on or after January 1, 2009. 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 2009, the maximum credit allowed for both renters and homeowners is $960.
To be eligible for the credit for the 2009 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2009 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, 2009, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $788,000. For more information, see:
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. Effective August 1, 2009, the use tax increased from 5 percent to 6.25 percent. For more information, see
Major Federal Tax Law Changes for 2009 That Do Not Pertain to Personal Income Tax in Massachusetts
Abatement for Losses from Criminally Fraudulent Investment Arrangements
Note: The following information is a summary of the Department's public written statement, Technical Information Release 09-15, Massachusetts Personal Income Tax Treatment of Certain Criminally Fraudulent Investment Arrangements.
Fraudulent arrangements often take the form of so-called "Ponzi" schemes, in which the party perpetrating the fraud receives cash or property from investors, purports to earn income for the investors, and reports to the investors income amounts that are wholly or partially fictitious.
- Federal Losses under I.R.C. §165 (c)(2) per Rev. Rul. 2009-9:
Federal income tax law governing losses from such schemes, including the nature of such losses, the amount of such losses to be allowed, and the year of deductibility;
- Federal Safe Harbor Method per Rev. Proc. 2009-20:
For computing a deemed theft loss in the case of a "qualified investor" with a "qualified loss" from a "specified fraudulent arrangement." A taxpayer using the safe harbor must agree not to file amended federal income tax returns to exclude or recharacterize income reported with respect to the investment arrangement in taxable years proceeding the discovery year. Rev. Proc. 2009-20 applies to losses for which the discovery year is a taxable year beginning after December 31, 2007.
Massachusetts law does not adopt the federal deduction for theft loss under I.R.C. § 165(c)(2) or (3) for individual investors. Thus, the federal rules described in Rev. Rul. 2009-9 and the optional federal safe harbor method for a qualified investor to claim a theft loss deduction under Rev. Proc. 2009-20 are not applicable for Massachusetts personal income tax purposes.
Abatements and Deductions:
Qualifying individual taxpayers who invested in a criminally fraudulent investment arrangement may be entitled to the following abatements or deductions, but only if the taxpayer was not complicit in the fraud:
- Potential abatements for prior years:
A taxpayer, whether or not he or she elects the federal safe harbor under Rev. Proc. 2009-20, may be eligible to file an application for abatement for open tax years to exclude from Massachusetts income "fictitious" income that had been reported by the taxpayer in those open tax years.
- Potential deduction for capital loss in subsequent year when actual loss is finally determined and sustained:
A taxpayer with a "qualified loss" from a "specified fraudulent arrangement," as these terms are defined under Rev. Proc. 2009-20, may be eligible for a capital loss deduction for Massachusetts personal income tax purposes when such loss is ultimately sustained. Massachusetts capital loss treatment may apply whether or not a taxpayer elects the federal safe harbor.
For more information, see:
Notice - Individual Investors; Investments in Criminally Fraudulent Ponzi-type Schemes and Reporting of Fictitious Investment Income
AP 627: Applications for Abatement
For federal income tax purposes, gross income includes income realized by a debtor from the cancellation of debt, The amount of the cancellation of debt (COD) income generally is equal to the difference between the adjusted issue price of the debt being cancelled and the amount used to satisfy the debt. These rules generally apply to the exchange of an old obligation for a new obligation, including a modification of debt that is treated as a debt-for-debt exchange.
Under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA"), I.R.C § 108(i) was added that allows certain taxpayers can elect to defer recognition of COD income over 10 years (deferring tax on COD income for the first four or five years and then recognizing the income ratably over the following five taxable years). At the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer's fourth or fifth taxable year following the taxable year of the reacquisition.
For purposes of the corporate excise and the personal income tax, a taxpayer that makes the federal election allowed by I.R.C. § 108(i) is required to add back to gross income any COD income that is deferred under such section. In future years when the deferred COD income is recognized for federal purposes, the taxpayer is allowed to make a corresponding subtraction, since the recognition event will have already taken place for Massachusetts tax purposes. For more information, see:
Under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA"), 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, 2008 and before January 1, 2010. 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.
New Car Purchases (IRS Update Only)
Under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA"), for federal income tax purposes, taxpayers who buy a new passenger vehicle in 2009 may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 federal tax returns next year. The deduction is limited to the state and local sales and excise taxes paid up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. The vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction. The special deduction is available regardless of whether a taxpayer itemizes deductions on their return.
Massachusetts does not adopt this deduction for sales tax paid on a qualified motor vehicle.
Transportation Fringe Benefits
Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2009 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 January and February of 2009 - the IRS's Revenue Procedure/inflation adjustment formula increases both amounts - $230 per month for employer-provided parking, and $120 per month for employer-provided combined transit pass and commuter highway vehicle transportation benefits.
- 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:
Unemployment Benefits (IRS Update Only)
For federal income tax purposes, pursuant to I.R.C. § 85, individuals must include in federal gross income any unemployment compensation received under the laws of the U.S. or any state. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") added new I.R.C. § 85(c) whereby up to $2,400 of unemployment compensation benefits received in 2009 are excluded from the gross income of the recipient.
For personal income tax purposes, Massachusetts generally follows the provisions of the Code as of January 1, 2005, with certain exceptions. Since I.R.C. § 85 is not one of the Code sections included as an exception, Massachusetts follows I.R.C. § 85 as amended and in effect on January 1, 2005 and does not adopt the new § 85(c) provision allowing an exclusion from gross income for up to $2,400 of unemployment compensation benefits received in 2009. Thus, for Massachusetts personal income tax purposes, an individual must include in gross income the entire amount of unemployment compensation received in 2009. For more information see: