2021 Personal Income and Corporate Excise Tax Law Changes

Here you will find descriptions of major Massachusetts Personal Income (Chapter 62) and Corporate Excise (Chapter 63) tax law changes for tax year 2021.

Posted: March 17, 2022

Table of Contents

Tax Year 2021 Filing Season Update Video

View the tax year 2021 Filing Season Update Video to learn about a wide range of topics including:

  • Detailed updates related to personal income tax filings
  • The expansion of electronic filing and payment requirements for a number of tax types
  • A summary of the COVID relief efforts for small businesses
  • Trustee tax return changes for 2022
  • A review of important webpages and DOR contact information, and
  • A brief overview of operations at DOR in response to the current pandemic. 
2021 Filing Season Update Video

 

 

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 more up-to-date and detailed information on (i) tax changes and federal conformity, (ii) the Department of Revenue’s response to the COVID-19 pandemic, and (iii) to view all of the public written statements referenced in these instructions, visit COVID-19 Response from DOR and DOR's Legal Library

Also visit: 

Tax Year 2021 Personal Income (Chapter 62) Changes


Filing Due Dates

Massachusetts General Laws (“MGL”) ch 62C § 6 requires individuals to file their tax return (Form 1) on or before fifteenth day of the fourth month following the close of each taxable year. However, for calendar year 2021, Taxpayers in Massachusetts will have until April 19, 2022 to file both their federal and state 2021 income tax returns. The Internal Revenue Service announced a due date of April 18 for filing federal income tax returns, the first business day following Emancipation Day, celebrated in Washington, D.C. on Friday, April 15, 2022. Patriots' Day is celebrated in Massachusetts on April 18, 2022, which moves the deadline for Massachusetts taxpayers to file 2021 income tax returns to the next business day of April 19, 2022.
 

2021 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 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) is 12%.
 

Expansion of Certain Electronic Filing and Payment Requirements

TIR 21-9 announced the expansion of electronic filing and payment requirements for certain tax types. The changes for partnerships and fiduciaries are effective for tax periods ending on or after December 31, 2021, and for payments made on or after January 1, 2022. It also announced an expansion of the Department’s two-dimensional bar code requirements for paper forms produced by tax preparation software programs effective for tax periods ending on or after December 31, 2021. See additional information on the Department’s website.
 

Employees Working Remotely due to COVID-19

In response to the COVID-19 pandemic, a state of emergency was declared in Massachusetts and many businesses implemented work-from-home requirements for their employees. Due to Massachusetts’ COVID-19 state of emergency, all compensation paid for services performed prior to September 13, 2021, to non-residents who would generally perform such services in Massachusetts but for a Pandemic-Related Circumstance will be treated as Massachusetts source income subject to Massachusetts personal income tax.  These rules were in effect until 90 days after the state of emergency in Massachusetts was lifted. Pursuant to COVID-19 Order No. 69, the state of emergency was terminated effective June 15, 2021, and therefore the rules expired on September 13, 2021. See 830 CMR 62.5A.3 and TIR 20-15 for more information.
 

Penalty for Failure to Obtain Health Insurance

Massachusetts requires most adults 18 and over with access to affordable health insurance to obtain it. In 2021, 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 generally subject to penalties in Massachusetts for each month of noncompliance in the tax year. The monthly penalties, which will be imposed through the individual’s personal income tax return, are set out in TIR 21-1 and are based on half of the minimum monthly insurance premium for which an individual would have qualified through the Health Connector.
 

Dependent Care Tax Credit

Starting with the 2021 tax year, individuals subject to tax under MGL ch 62 are eligible to receive a Dependent Care Tax Credit (DCTC) equal to employment-related expenses for the care of a qualified child under the age of 13, a disabled dependent, or a disabled spouse. To claim the credit a taxpayer must be eligible for the federal Dependent Care Tax Credit allowed under Internal Revenue Code (“IRC”) § 21. For taxpayers filing a joint U.S. Form 1040 that are filing separately for Massachusetts purposes, either spouse may claim the DCTC for expenses incurred, but their combined DCTC cannot exceed $240 for one qualifying individual or $480 for two or more qualifying individuals. The DCTC is refundable but is not transferable, and is payable without interest. With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year. A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit. A taxpayer claiming the DCTC may not also claim the Household Dependent Tax Credit. 

This credit replaces the Dependent Care Deduction for employment-related expenses incurred in caring for dependents, which was repealed for tax years beginning on or after January 1, 2021. See TIR 22-5 for more information.

Household Dependent Tax Credit

Starting with the 2021 tax year, individuals subject to tax under MGL ch 62 may claim the Household Dependent Tax Credit (HDTC) if they maintain a household as provided under IRC § 21 that includes an individual who qualifies as a dependent under IRC § 152 and who is under the age of 12, age 65 or over, or is disabled. The amount of the HDTC is $180 if the taxpayer has one dependent or $360 if the taxpayer has two or more dependents. The HDTC is refundable but is not transferable, and is payable without interest. With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year. A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit. A taxpayer claiming the HDTC may not also claim the Dependent Care Tax Credit.

This credit replaces the deduction for household dependents, which was repealed for tax years beginning on or after January 1, 2021. See TIR 22-5 for more information.

Cranberry Bog Renovation Tax Credit

For tax years beginning on or after January 1, 2020, individuals subject to tax under MGL ch 62 who are primarily engaged in cranberry production may be eligible for a Cranberry Bog Renovation Tax Credit (CBRTC), which is equal to 25% of the taxpayer’s total qualified renovation expenditures incurred for the qualified renovation of a cranberry bog for the cultivation, harvesting or production of cranberries. The CBRTC is refundable but is not transferable. However, in lieu of claiming the CBRTC as a refundable tax credit, the taxpayer may carryover unused CBRTC for the next 5 years. See TIR 22-5 for more information.

Disability Employment Tax Credit

For tax years beginning on or after January 1, 2023, employers certified by the Massachusetts Rehabilitation Commission and subject to tax under MGL ch 62 that hire employees with a disability who live and work in Massachusetts may be eligible for a Disability Employment Tax Credit equal to the lesser of $5,000 or 30% of the wages paid to a qualified employee in the first year of employment, and the lesser of $2,000 or 30% of the wages paid to a qualified employee in each subsequent year of employment. The credit is refundable but is not transferable. See TIR 22-5 for more information.

New Optional Pass-Through Entity Excise and Credit

For taxable years beginning on or after January 1, 2021, newly-enacted MGL ch 63D provides for an elective excise on pass-through entities (PTEs), including partnerships, S corporations, and certain trusts. The excise is imposed at a rate of 5% on the amount of the PTE’s income that is subject to the Massachusetts personal income tax at the individual partner, shareholder, or beneficiary level. Qualified members are allowed a personal income tax credit for 90% of their share of the PTE Excise paid by the PTE. See TIR 22-6, and Elective pass-through entity excise.

Changes to the Film Incentive Credits

Motion picture companies subject to tax under MGL ch 62 may claim credits with respect to certain payroll expenses and certain production expenses. The credits were due to expire on January 1, 2023 but have been made permanent. In addition,  for taxable years beginning on or after January 1, 2022, a taxpayer must incur at least 75% of its production expenses in Massachusetts for a film project to qualify for the production expense credit, but a 50% threshold applies to prior taxable years. See TIR 22-5 for more information.

Changes to the Low-Income Housing Tax Credit

A low-income housing credit is available to MGL ch 62 taxpayers that invest in affordable rental housing (“Qualified Massachusetts Projects”) to the extent authorized by the Department of Housing and Community Development (“DHCD”). DHCD allocates the amount of credits a taxpayer can claim based on an annual aggregate statewide limit. Effective for tax years beginning on or after January 1, 2021 and ending on or before December 31, 2025, the credit’s annual limit is increased from $20,000,000 to $40,000,000. For tax years beginning on or after January 1, 2026, the credit’s annual limit will revert to $20,000,000. See TIR 22-5 for more information.

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 $1,170. 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 2021 must not exceed $884,000. For purposes of calculating the credit, total income and maximum credit thresholds are adjusted annually. For tax year 2021, an eligible taxpayer’s total income cannot exceed $62,000 in the case of a single filer who is not a head of household filer; $78,000 for a head of household filer; and $93,000 for joint filers. To qualify for the credit, a taxpayer must occupy the property as his or her principal residence. See TIR 21-11 for more information.
 

Employer-Provided Parking, Transit Pass, and Commuter Highway Vehicle Benefits Exclusion Amounts

Massachusetts adopts 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 2021, the IRS has calculated, based on inflation adjustments contained in IRC § 132(f) as effective on January 1, 2005, the 2021 monthly exclusion amounts of $275 for employer-provided parking and $140 for combined transit pass and commuter highway vehicle transportation benefits. Massachusetts adopts these 2021 monthly exclusion amounts as they are based on the IRC as effective on January 1, 2005. See TIR 20-16 for more information.
 

Taxation of Unemployment Compensation Received in 2021

Legislation enacted in 2021 provides that, for taxable years beginning on January 1, 2021, up to $10,200 of unemployment compensation included in a taxpayer’s federal gross income shall be deducted from federal gross income for purposes of determining Massachusetts gross income for taxpayers whose household income is not more than 200% of the federal poverty level. The deduction is not limited to $10,200 per return, rather, a deduction of up to $10,200 may be claimed by each eligible individual for unemployment compensation received by that individual. See TIR 21-6 for more information.
 

Delay in reinstatement of the personal income tax deduction for charitable contributions

The Massachusetts charitable deduction, which has been suspended since the 2002 tax year, was scheduled to be reinstated for tax years beginning on or after January 1, 2021. However, this reinstatement has been delayed and will be available for tax years beginning on or after January 1, 2023.  See TIR 22-5 for more information.

COVID-Related Small Business Relief Received from a Program Administered by the Massachusetts Growth Capital Corporation

For taxable years beginning on or after January 1, 2021, recently passed legislation allows taxpayers to deduct any amount they received from a small business relief program administered through the Massachusetts Growth Capital Corporation for purposes of providing emergency COVID-19 relief, including grants and the portion of any loan subsequently forgiven, in determining their Massachusetts gross income. See TIR 22-5 for more information.

Deduction for Certain Federal COVID-Related Relief Payments

For taxable years beginning on or after January 1, 2021, recently passed legislation provides for a deduction from federal gross income for purposes of determining Massachusetts gross income for the following amounts: (i) the amount of any cancellation of debt income related to Paycheck Protection Program loans made under § 1102(a) of the federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that are forgiven as described in subsection (b) of § 1106 of the CARES Act; (ii) the amount of any advance received as an Economic Injury Disaster Loan pursuant to § 1110(e) of the CARES Act; (iii) the amount of any Small Business Administration payment described in § 1112(c) of the CARES Act; (iv) the amount of any funding received as an Economic Injury Disaster Loan pursuant to § 331 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; (v) the amount of any Shuttered Venue Operator grant made under § 324 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; and (vi) the amount of any Restaurant Revitalization Grant received from the Small Business Administration under § 5003 of the federal American Rescue Plan Act of 2021. Accordingly, taxpayers who received such federal payments in 2021 should deduct these amounts from their Massachusetts gross income. 

Consistent with the federal rules, a deduction is allowed for otherwise deductible expenses that are paid using proceeds from these programs. See TIR 22-2 and and TIR 22-5 for more information.

Deduction for Contributions to a Massachusetts 529 College Savings Plan or Prepaid Tuition Program Made Permanent

Taxpayers may deduct certain contributions to a Massachusetts 529 college savings plan or a prepaid tuition program. This deduction was scheduled to expire for tax years beginning on or after January 1, 2022, but recent legislation has made it permanent. See TIR 22-5 for more information.
 

Federal Tax Law Changes

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. Massachusetts adopts on a current basis IRC provisions related to:

  • Roth IRAs;
  • 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;
  • Annuities;
  • 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.

In recent years there have been several federal acts that have had implications for the Massachusetts personal income tax. Most recently, the enactment of (i) the Federal Consolidated Appropriations Act, 2021 omnibus legislation, which includes the COVID-Related Tax Relief Act of 2020 and the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and (ii) the American Rescue Plan Act of 2021, resulted in several modifications to the Massachusetts personal income tax including (1) an expansion of the federal earned income tax credit (“EITC”) that impacts the calculation of the Massachusetts EITC, (2) the timing of inclusion in gross income of withdrawals from certain retirement accounts, (3) an exclusion from gross income of federal recovery rebates, (4) an exclusion from gross income of discharges and employer payments of certain student loans, (5) an exclusion from gross income of child tax credits, (6) a reduction of the depreciation period for certain residential rental property from 40 years to 30 years, (7) the treatment of debt forgiven and expenses incurred pursuant to PPP loans, (8) the treatment of expenses paid using proceeds from Economic Injury Disaster Loans, Debt Relief Subsidies paid by the Small Business Administration, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants, (9) an expansion of the limitation on the deduction of executive compensation paid by publicly traded corporations, (10) a temporary allowance for businesses to deduct as a business expense the full amount of the cost of food and beverages provided by a restaurant, (11) a reduction to the medical expense deduction threshold for taxpayers that itemize their deductions on their federal income tax returns, (12) modifications to health and dependent care flexible spending arrangements, (13) an increase in the amount that a business can deduct for food and beverages, (14) an exclusion from gross income of benefits provided to volunteer firefighters and emergency medical responders, and (15) an exclusion from gross of certain COBRA premium assistance. For more information see TIR 22-2.

For more information on the differences between federal and Massachusetts income tax rules, please see Differences between Massachusetts state tax law and federal tax law for personal income.

Tax Year 2021 Corporate Excise (Chapter 63) Changes

 

Filing Due Dates

Massachusetts General Laws (“MGL”) ch 62C, §§ 11 and 12 require C corporations to file their tax returns on or before the 15th day of the fourth month following the close of each taxable year (April 15 in the case of corporations filing on a calendar year basis). The filing due date for S corporation tax returns is the 15th day of the third month following the close of each taxable year. For more information, see TIR 17-5.

For most calendar year filers, returns are due April 19, 2022. Most C corporations in Massachusetts will have until April 19, 2022 to file their federal and state 2021 tax returns. The IRS announced a due date for filing federal tax returns of April 18, the first business day following Emancipation Day, celebrated in Washington, D.C. on Friday, April 15, 2022. Because Patriots' Day is celebrated in Massachusetts on April 18, 2022, the deadline for Massachusetts taxpayers to file 2021 tax returns is the next business day, April 19, 2022.


Expansion of Mandatory Electronic Filing for Corporate Excise Returns

Effective for tax periods ending on or after December 31, 2021, electronic filing and payment of tax will be required of all business corporations and financial institutions subject to tax under MGL ch 63, with no income threshold. For more information, see TIR 21-9. For additional information, please visit DOR e-filing and payment requirements.
 

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. DOR 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 TIR 20-15. These rules were in effect until 90 days after the state of emergency in Massachusetts was lifted. Pursuant to COVID-19 Order No. 69, the state of emergency was terminated effective June 15, 2021, and therefore the rules expired on September 13, 2021.

During the period prior to September 14, 2021, DOR did 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 did not, of itself, cause a corporation to lose the protections of Public Law 86-272. Relatedly, for corporate apportionment purposes, for the period prior to September 14, 2021, (i) services performed by such persons in Massachusetts did 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 did not increase the numerator of the employer’s property factor.
 

Taxation of Forgiven Paycheck Protection Program Loans

For taxable years beginning on or after January 1, 2020, corporations may deduct cancellation of debt income related to forgiven Paycheck Protection Program (“PPP”) loans. PPP loan borrowers subject to the corporate and financial institution excise should not include the amount of a PPP loan forgiven under § 1106(b) of the CARES Act, and a deduction is allowed for otherwise deductible expenses that are paid with the proceeds of a PPP loan that is forgiven. For more information, see TIR 22-2.
 

New Optional Pass-Through Entity Excise

For taxable years beginning on or after January 1, 2021, newly-enacted MGL ch 63D provides for an elective excise on pass-through entities (PTEs), including partnerships, S corporations, and certain trusts. The excise is imposed at a rate of 5% on the amount of the PTE’s income that is subject to the Massachusetts personal income tax at the individual partner, shareholder, or beneficiary level. Qualified members are allowed a personal income tax credit for 90% of their share of the PTE Excise paid by the PTE. See TIR 22-6, and Elective pass-through entity excise.

COVID-Related Small Business Relief Received from a Program Administered by the Massachusetts Growth Capital Corporation

For taxable years beginning on or after January 1, 2021, recently passed legislation allows corporate excise taxpayers to deduct any amount they received from a small business relief program administered through the Massachusetts Growth Capital Corporation for purposes of providing emergency COVID-19 relief, including grants and the portion of any loan subsequently forgiven, in determining their Massachusetts gross income. See TIR 22-5 for more information.

Cranberry Bog Renovation Credit

For tax years beginning on or after January 1, 2020, corporations subject to the corporate excise and primarily engaged in cranberry production may be eligible for a credit against the excise equal to 25% of the expenses they incur in the renovation, repair, replacement, regrading or restoration of a cranberry bog for the cultivation, harvesting or production of cranberries. The credit is refundable but is not transferrable. However, in lieu of claiming the credit as a refundable tax credit, the taxpayer may carryover unused credit for the next 5 years. See TIR 22-5 for more information.

Disability Employment Credit

For tax years beginning on or after January 1, 2023, employers certified by the Massachusetts Rehabilitation Commission and subject to the corporate excise that hire employees with a disability who live and work in Massachusetts may be eligible for a Disability Employment Tax Credit equal to the lesser of $5,000 or 30% of the wages paid to a qualified employee in the first year of employment, and $2,000 or 30% of the wages paid to a qualified employee in each subsequent year of employment. The credit is refundable but is not transferrable. See TIR 22-5 for more information.

Changes to the Film Incentive Credits

Motion picture companies subject to the excise imposed under MGL ch 63 may claim credits with respect to certain payroll expenses and certain production expenses. The credits were due to expire on January 1, 2023 but have been made permanent. In addition, for taxable years beginning on or after January 1, 2022, a taxpayer must incur at least 75% of its production expenses in Massachusetts for a film project to qualify for the production expense credit, but a 50% threshold applies to prior taxable years. See TIR 22-5 for more information.

Changes to the Low Income Housing Tax Credit

A low-income housing credit is available to eligible corporations that invest in affordable rental housing (“Qualified Massachusetts Projects”) to the extent authorized by the Department of Housing and Community Development (“DHCD”).  DHCD allocates the amount of credits a taxpayer can claim based on an annual aggregate statewide limit. Effective for tax years beginning on or after January 1, 2021 and ending on or before December 31, 2025. the credit’s annual limit is increased from $20,000,000 to $40,000,000. For tax years beginning on or after January 1, 2026, the credit’s annual limit will revert to $20,000,000. See TIR 22-5 for more information.

Conformity with Federal Legislation

In recent years there have been several federal acts that have had implications for the Massachusetts corporate and financial institution excise. Massachusetts generally follows the Internal Revenue Code (“IRC”) as currently in effect for Massachusetts corporate and financial institution excise purposes. 

The enactment of (i) the Federal Consolidated Appropriations Act, 2021 omnibus legislation, which is comprised of the COVID-Related Tax Relief Act of 2020 and the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and (ii) the American Rescue Plan Act of 2021 resulted in several modifications to the Massachusetts corporate and financial institution excise, including (1) the allowance of deductions for otherwise deductible business expenses even if the expenses are paid with the proceeds of forgiven Paycheck Protection Program loans; (2) the exclusion of Shuttered Venue Operator Grants or Restaurant Revitalization Grants from Massachusetts gross income and allowance of deductions for expenses paid using such grants; (3) the new depreciation schedule for certain residential rental property; (4) the increased charitable contribution deduction limitation for certain qualified disaster relief contributions; (5) the expansion of disallowance of deduction for certain compensation paid by publicly-traded corporations; and (6) the temporary allowance of deductions for the full amount of the cost of food and beverages provided by a restaurant on or after January 1, 2021 through December 31, 2022. See TIR 22-2.
 

Prior changes Related to Federal Tax Reform

In 2017 and 2020, two federal acts which had implications for the Massachusetts corporate and financial institution excise were signed into law: (i) Public Law 115-97, commonly known as the Tax Cuts and Jobs Act (“TCJA”); and (ii) Public Law 116-136, commonly known as the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (together, the “Acts”). The Acts provided for changes to a variety of provisions in the IRC that affect the Massachusetts corporate and financial institution excise. For more information see TIRs 18-14, 19-6, 19-7, 19-9, 19-11, and 20-9.

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