Massachusetts Tax Law and Federal Conformity
For personal income tax purposes, Massachusetts generally follows the provisions of the Internal Revenue Code (IRC) as amended and in effect on January 1, 2005. In certain instances, however, Massachusetts specifically adopts provisions of the IRC as currently in effect.
Massachusetts follows the IRC as currently in effect for Massachusetts corporate excise purposes.
For additional information about these specific provisions, visit DOR's Legal Library and see Changes Related to Federal Tax Reform, below.
Tax Year 2020 Personal Income (Chapter 62) Changes
Filing Due Dates
Form 1 is due on or before April 15, 2021.
2020 Personal Income Tax Rates
Effective for tax years beginning on or after January 1, 2020, the tax rate on most classes of taxable income is changed to 5%. 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% deduction) remains at 12%.
Revised Guidance on the Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic
In response to the COVID-19 pandemic, several states, including Massachusetts, have declared a state of emergency, and many businesses have implemented work-from-home requirements for their employees in response to government orders and public health recommendations. During Massachusetts’ COVID-19 state of emergency, all compensation paid to non-residents, who would generally perform such services in Massachusetts but for a Pandemic-Related Circumstance, will continue to be treated as Massachusetts source income subject to Massachusetts personal income tax. Additionally, in consideration of the fact that other states have adopted similar sourcing rules, Massachusetts residents, who, immediately prior to the Massachusetts COVID-19 state of emergency were employees engaged in performing services from a location outside of Massachusetts, and who began performing such services in Massachusetts due to their employing state’s COVID-19 state of emergency or other Pandemic-Related Circumstance, will be eligible to claim a credit for taxes paid to that other state, to the extent generally provided under Massachusetts law. For more information about this change please see Important COVID-19 Response Update from DOR.
Penalty for Failure to Obtain Health Insurance
Massachusetts requires most adults 18 and over with access to affordable health insurance to obtain it. In 2020, 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 (Health Connector). Individuals who are deemed able to afford health insurance but fail to obtain it are subject to penalties in Massachusetts for each month of noncompliance 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 monthly penalties, which will be imposed through the individual’s personal income tax return, are set out in Technical Information Release (TIR) 20-1 and are based on half of the minimum monthly insurance premium for which an individual would have qualified through the Health Connector.
Note: For tax years beginning on or after January 1, 2019, a taxpayer who does not have health insurance that meets the federal standard of minimum essential coverage will no longer be subject to the federal shared responsibility payment (federal healthcare penalty). Schedule HC, Health Care Information, must be completed by all full-year and certain part-year residents age 18 and over to notify DOR whether or not they had health insurance for each month of 2020. Taxpayers who did not have coverage for all of 2020, or had a gap in coverage of four or more consecutive months will need to determine if they had access to affordable health insurance (through an employer, the government, or on their own) using worksheets and tables available for this purpose. This may include consequences from the COVID-19 health crisis, including that the crisis caused you to experience a significant loss of income, a loss of insurance, a significant increase in essential expenses, and/or other circumstances such that purchasing insurance would have caused you to experience such serious deprivation. If it is determined that a taxpayer could have afforded health insurance, the taxpayer has the right to appeal the application of the penalty due to hardship by requesting an appeal to the Connector on the Schedule HC. For more information about the health care reform law, including the Department’s regulation at 830 CMR 111M.2.1, Health Insurance Individual Mandate; Personal Income Tax Return Requirements, or the Health Connector’s regulation at 956 CMR 6.00, Determining Affordability for the Individual Mandate, see the Health Connector’s website at mahealthconnector.org or the Department’s website at mass.gov/dor.
Annual Update of Circuit Breaker Tax Credit
Taxpayers age 65 or older who own or rent residential property located in Massachusetts are allowed a credit equal to the amount by which their real estate tax payments, or 25% of the rent constituting a real estate tax payment, exceeds 10% of the taxpayer’s total income, not to exceed $1,150. The amount of the credit is subject to limitations based on the taxpayer’s total income and the assessed value of the real estate, which for tax year 2020 must not exceed $848,000. For purposes of calculating the credit, total income and maximum credit thresholds are adjusted annually. For tax year 2020, an eligible taxpayer’s total income cannot exceed $61,000 in the case of a single filer who is not a head of household filer; $76,000 for a head of household filer; and $92,000 for joint filers. In order to qualify for the credit, a taxpayer must be age 65 or older and must occupy the property as his or her principal residence. See TIR 20-14.
Employer-Provided Parking, Transit Pass, and Commuter Highway Vehicle Benefits Exclusion Amounts
Massachusetts adopts Internal Revenue Code (“IRC”) § 132(f) as amended and in effect on January 1, 2005, which excludes from an employee’s gross income (subject to a monthly maximum) employer-provided parking, transit pass, and commuter highway vehicle transportation benefits. For tax year 2020, the IRS has calculated, based on inflation adjustments contained in IRC § 132(f) as effective on January 1, 2005, the 2020 monthly exclusion amounts of $270 for employer-provided parking and $140 for combined transit pass and commuter highway vehicle transportation benefits. Massachusetts adopts these 2020 monthly exclusion amounts as they are based on the IRC as effective on January 1, 2005. See TIR 19-16.
Tax Filing and Payment Relief for Personal Income Taxpayers Affected by COVID-19
Pursuant to “An Act to Address Challenges Faced by Municipalities and State Authorities Resulting from COVID-19” (the “Act”), the due date for personal income tax returns and payments otherwise due April 15, 2020 (personal income tax, estate and trust income tax, income tax due with a partnership composite return with an April 15, 2020 due date, and April, 2020 tax installments owed by personal income taxpayers with respect to deemed repatriated income) was changed to July 15, 2020. See TIR 20-4.
State Tax Relief to Joint Filers of Tax Returns
Under “An Act Providing for Equitable Relief from Liability for Joint Filers of Tax Returns,” St. 2018, c. 445, (the “Act”), there are now three types of relief from joint tax liability available to an innocent spouse: (i) innocent spouse relief, (ii) separation of liability relief, and (iii) equitable relief in Massachusetts. For more information see TIR 19-5.
Changes Related to Federal Tax Reform
As a general rule, Massachusetts does not adopt any federal personal income tax law changes incorporated into the IRC after January 1, 2005. However, certain specific Massachusetts personal income tax provisions, as set forth in MGL ch 62, § 1(c), automatically conform to the current IRC. The provisions of the IRC Massachusetts adopts on a current basis are:
- Roth IRAs;
- The exclusion for gain on the sale of a principal residence;
- Trade or business expenses;
- Travel expenses;
- Meals and entertainment expenses;
- The maximum deferral amount of government employees’ deferred compensation plans;
- The deduction for health insurance costs of self-employed taxpayers;
- Medical and dental expenses;
- Health savings accounts;
- Employer-provided health insurance coverage;
- Amounts received by an employee under a health and accident plan; and
- Contributions to qualified tuition programs. See TIRs 98-8, 02-11, 02-18, 07-4 and 09-21 for further details.
On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act (“TCJA”), was signed into law. The TCJA provides for federal changes to a variety of provisions in the IRC that affect the personal income tax. Massachusetts generally follows changes made by the TCJA to the personal income tax provisions listed above, as set forth in MGL ch 62, § 1(c), which automatically conform to the current IRC. For more information about the TCJA changes see mass.gov/dor for DOR’s public written guidance on the impact of certain provisions of the TCJA, including TIRs 18-14, 19-6, 19-7 and 19-11. In addition, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended some of the TCJA provisions to tax year 2020.
On March 27, 2020, Public Law 116-136, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), was signed into law. The CARES Act provides for federal changes to a variety of provisions of the Internal Revenue Code (IRC) that affect personal income taxpayers. In response to the CARES Act, DOR issued written guidance addressing the impact of the CARES Act in Massachusetts. Note that under this guidance, COVID-19 recovery rebates to individuals are not subject to Massachusetts personal income tax and expanded unemployment benefits are subject to Massachusetts personal income tax. The guidance also addresses the impact of the CARES Act on other issues, including (1) tax-favored withdrawals from retirement funds, (2) loans from qualified employer retirement plans, (3) temporary waiver of required minimum distribution rules for certain retirement plans and accounts, (4) allowance of partial above-the-line deduction for charitable contributions, (5) modification of limitation on charitable contributions during 2020, (6) exclusion for certain employer payments of student loans, (7) modification of limitation on losses for taxpayers other than corporations, and (8) changes to health savings accounts, flexible spending accounts, and Archer medical savings accounts. See TIR 20-9: Massachusetts Tax Implications of Selected Provisions of the Federal CARES Act.
RECENT CHANGES TO INTERNAL REVENUE CODE PROVISIONS THAT IMPACT CERTAIN MASSACHUSETTS PERSONAL INCOME TAXPAYERS
Interest Expense Deduction Limitations (IRC § 163(j))
Beginning with the 2018 tax year, a trade or business deduction for net business interest in a given taxable year is now limited to 30% of adjusted taxable income, and the excess is carried forward. Section 2306 of the Cares Act amends Code § 163(j) for tax years 2019 and 2020 (i) to increase the limitation to 50% of adjusted taxable income; and (ii) allows taxpayers to elect to use 2019 adjusted taxable income in calculating the limitation for tax year 2020. Massachusetts adopts the current Code with respect to Code § 163 for personal income taxpayers with business interest expense (e.g., individual taxpayers with schedule C income, etc.).
Medical Expenses (IRC § 213)
Taxpayers are allowed a deduction for medical expenses for amounts that exceed a certain percent threshold of their federal adjusted gross income. Under the TCJA, the threshold was decreased from 10% to 7.5% of federal adjusted gross income and extended by the Taxpayer Certainty and Disaster Tax Relief Act of 2019 to the 2020 tax year. The deduction is available only to those taxpayers who itemize their deductions. Taxpayers that take the standard deduction are not eligible to take the deduction for medical expenses. Massachusetts adopts these changes. Massachusetts allows a deduction for medical expenses under MGL ch 62, § 3B(b)(4) equal to the federal deduction only for taxpayers that itemize deductions on a federal return.
Inclusion of GILTI in Gross Income; Dividend Treatment (IRC § 951A)
The TCJA added IRC § 951A, which requires U.S. individual shareholders of a controlled foreign corporation (CFC) to include their pro rata share of the CFC’s global intangible low-taxed income (GILTI) in federal gross income each year, starting with taxable years beginning after December 31, 2017. This income is also subject to the dividend gross-up rules set out in IRC § 78, to the extent that this income is included in a taxpayer’s federal gross income. Massachusetts adopts this change as Massachusetts follows the current IRC with respect to IRC § 951A. GILTI income is treated as Part A dividend income under MGL ch 62. The Massachusetts schedule to be used by a personal income taxpayer reporting such income for tax year 2020 has been consolidated with the one for corporate excise taxpayers. For tax year 2020, all taxpayers with GILTI income must complete a Schedule FCI.
Loans from Qualified Employer Retirement Plans
The CARES Act modifies the federal tax treatment of loans to employees from qualified employer retirement plans, specifically, Code § 72(p) generally treats loans employees from a qualified employer retirement plan as a distribution for tax purposes, unless an exception applies. Pursuant to § 2202 of the CARES Act, loans are not treated as distributions if they are for $100,000 or less and made during the 180-day period beginning on March 27, 2020. The section also delays the due dates for outstanding loans from qualified employer plans due during the period beginning on March 27, 2020 and ending on December 31, 2020, for one year. Massachusetts adopts the current Code with respect to the provisions affected by this section, and therefore, loans from qualified employer plans are not treated as distributions to the extent they are not treated as such for federal purposes.
Use of Health Savings Accounts, Flexible Spending Accounts, and Archer Medical Savings Accounts for Telehealth Services and Over-the-Counter Medical Products
Effective March 27, 2020, the CARES Act amended (i) Code §§ 106(f), 220(d)(2)(A), and 223(d)(2) to allow amounts paid or expenses incurred (after December 31, 2019) for medicine or drugs without a medical prescription to be covered by an HSA, FSA, or Archer MSA; (ii) and Code § 223(c)(2) to allow high-deductible health plans with an HSA to cover telehealth and other remote care services for plan years beginning on or before December 31, 2021. For personal income tax purposes, Massachusetts follows Code §§ 106 and 223 as currently in effect and therefore will similarly exclude from gross income such reimbursements from an HSA or FSA for medicine or drugs without a prescription. However, Massachusetts follows Code § 220 as amended and in effect on January 1, 2005, and therefore reimbursements for these expenses when paid by an Archer MSA will not be excluded.
Qualified Improvement Property (QIP)
Section 2307 of the CARES Act assigns a 15-year depreciable life under MACRS and a 20-year depreciable life under ADS to QIP placed in service after December 31, 2017. Because Massachusetts generally follows the current Code with respect to Code § 168 for personal income tax purposes, Massachusetts adopts the changes relating to QIP placed in service after December 31, 2017, for individual taxpayers, who incur business expenses (e.g., individuals with schedule C income, etc.).
Small Business Loan Forgiveness
Section 1106 of the CARES Act provides loan forgiveness to small businesses for certain loans made pursuant to the Paycheck Protection Program (“PPP”) under the Small Business Act. Furthermore, any amount of cancelled indebtedness resulting from these loans that would otherwise be includable in the gross income for federal income taxes will be excluded from federal gross income. Massachusetts does not adopt this change for purposes of the personal income tax, as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue, so these amounts are includable in gross income for Massachusetts purposes.
Tax Year 2020 Corporate Excise (Chapter 63) Changes
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, Public Law 116-136, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), was signed into law. The CARES Act provides for federal changes to a variety of provisions of the Internal Revenue Code (IRC) that affect business entities subject to the corporate and ﬁnancial institution excise. In response to the CARES Act, the Department of Revenue (DOR) issued TIR 20-9: Massachusetts Tax Implications of Selected Provisions of the Federal CARES Act, which addresses various provisions that are specific to corporations and small businesses including (1) small business loan forgiveness, (2) modifications to the federal limitations on net operating losses, (3) modifications to limitation on business interest deduction, (4) technical amendments regarding qualified improvement property, and (5) modification of limitation on charitable contributions during 2020. TIR 20-9 is available on DOR’s website.
Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) also changed a variety of provisions of the IRC that affect business entities subject to the corporate and ﬁnancial institution excise. In response to the TCJA, the Department of Revenue (DOR) issued written guidance addressing the impact of the TCJA in Massachusetts. See e.g., TIR 19-17: Application of IRC § 163(j) Interest Expense Limitation to Corporate Taxpayers, TIR 19-11: Legislation Impacting the Massachusetts Tax Treatment of Selected International Provisions of the Federal Tax Cuts and Jobs Act, TIR 19-9: Extension of Time to File Short-Year Returns Resulting from Partnership Technical Termination, TIR 19-7: Massachusetts Treatment of Investments in Qualiﬁed Opportunity Zones, and TIR 19-6: Impact of the Federal Tax Cuts and Jobs Act on a Taxpayer’s Overall Method of Accounting for Massachusetts Purposes. All of these TIRs are available on the DOR’s website.
Employees Working Remotely due to COVID-19: Massachusetts Tax Implications
Massachusetts declared a state of emergency and issued several health and safety related restrictions in response to the 2019 novel Coronavirus (“COVID-19”) pandemic. As a result, many businesses implemented work-from-home requirements for their employees. The Department has provided Massachusetts tax relief in situations in which employees work remotely due solely to the COVID-19 pandemic to minimize disruption for corporations doing business in Massachusetts. See 830 CMR 62.5A.3: Massachusetts Source Income of Non-Residents Telecommuting due to the COVID-19 Pandemic, and TIR 20-15: Revised Guidance on the Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic. These rules are effective until 90 days after the state of emergency in Massachusetts is lifted.
The Department will not consider the presence of one or more employees working remotely from Massachusetts solely due to a Pandemic-Related Circumstance, including the presence of business property reasonably needed for such persons’ use while working remotely, to be sufficient in and of itself to establish corporate nexus and a corporate excise filing requirement. In addition, such presence will not, of itself, cause a corporation to lose the protections of Public Law 86-272. Relatedly, for corporate apportionment purposes, (i) services performed by such persons in Massachusetts will not increase the numerator of the employer’s payroll factor, and (ii) the presence in Massachusetts of business property reasonably needed for such persons’ use while working remotely will not increase the numerator of the employer’s property factor.