|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Personal Income Tax
Facts: Taxpayer Cooper was employed by the City of Metropolis, located in the Commonwealth of Massachusetts, for twenty-five years and was a member of the City of Metropolis Contributory Retirement System established and maintained pursuant to chapter 32 of the General Laws. While so employed, Cooper contributed to the city retirement plan by means of deductions automatically taken from his salary. At no time did Cooper contribute to the Federal Insurance Contributions Act (FICA) or the Federal Railroad Retirement Act (FRRA). Upon retirement, Cooper began receiving his retirement allowance in accordance with the provisions of the plan.
Issue 1: To what extent are contributions made by Cooper deductible in computing his Part B taxable income?
Issue 2: Are the distributions to Cooper from the retirement plan subject to Massachusetts taxation?
Discussion: Massachusetts gross income is federal gross income with certain modifications. G.L. c. 62, § 2(a).
An employee's compensation for the taxable year includes amounts withheld from wages as contributions to a retirement plan. These amounts are included in the taxpayer's federal gross income and therefore are included in Massachusetts gross income. I.R.C. § 61; G.L. c. 62, § 2(a). Massachusetts law, however, allows a deduction for contributions to an annuity or retirement fund of the Commonwealth or any political subdivision in computing taxable income. G.L. c. 62, § 3(B)(a)(4). The sum of the deduction for retirement contributions and the deduction for taxes paid to FICA or FRRA cannot exceed $2000 per taxpayer. Id.
Distributions, less contributions, from retirement plans are included in the taxpayer's federal gross income, and therefore are included in Massachusetts gross income. I.R.C. § 61; G.L. c. 62, § 2(a). Massachusetts law, however, allows as a modification to gross income a deduction for amounts received from any annuity or retirement fund of the Commonwealth or any political subdivision thereof to which the employee has contributed. G.L. c. 62, § 2(a)(2)(E). Thus, such amounts are not subject to Massachusetts taxation.
Directive 1: Although the contributions made by Taxpayer Cooper are included in his Massachusetts gross income, they may be deducted from adjusted gross income up to a maximum of $2000 in computing taxable income. Thus, to the extent contributions do not exceed $2000, they are not subject to tax.
Directive 2: The distributions received by Taxpayer Cooper are not subject to Massachusetts taxation.
Reference: G.L. c. 62, §§ 2(a), (a)(2)(E), 3(B)(a)(4); I.R.C. § 61.
/s/Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue
12 June 1986
This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR § 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.