Filing extensions for personal income tax
The deadline for filing individual income tax returns and making payments (including extension payments) was extended from April 15, 2021 to May 17, 2021. Estimated payments were not included in the extension.
For those who filed on May 17 and requested that an overpayment be applied to 2021 estimated tax, the payment was not considered late provided the overpayment resulted from excess withholding paid during 2020, or any payments made for tax year 2020, if they were made by April 15, 2021.
The extension date for filing personal income tax returns of October 15, 2021 was unchanged. An amended return for tax year 2017 Massachusetts returns seeking a refund also remained due on April 15, 2021.
Paycheck Protection Program (PPP)
Reporting PPP loan forgiveness income.
What was the origin of loan forgiveness for PPP loans?
The Coronavirus Aid, Relief and Economic Security (CARES) Act established a Paycheck Protection Program (PPP) that provided loans to small businesses to pay certain business expenses. Under the CARES Act, a PPP loan recipient is eligible for loan forgiveness in an amount spent by the recipient during an 8-week period after the origination date of the loan on certain payroll, mortgage interest, rent, or utilities payments. The CARES Act also provides that any amount of cancelled indebtedness that would otherwise be includable in the gross income of the borrower under the Internal Revenue Code (Code) for federal income tax purposes is excluded from gross income. Following enactment of the CARES Act, the IRS announced that expenses paid with forgiven PPP loan proceeds would not be deductible by businesses. DOR issued guidance on the Massachusetts tax treatment of PPP loans in TIR 20-9: Massachusetts Tax Implications of Selected Provisions of the Federal CARES Act.
Was there an update to the decision to not allow expenses paid with PPP loans to be deductible?
Yes. Subsequently, the Consolidated Appropriations Act of 2021 (CAA 2021), provided that PPP loan recipients may deduct expenses paid for using PPP loan amounts, even if the PPP loans are ultimately forgiven.
Did Massachusetts update the treatment of loan forgiveness income?
Yes. Loan forgiveness income is excluded from gross income for personal income taxpayers for 2020 under “An Act Financing a Program for Improvements to the Unemployment Insurance Trust Fund and Providing Relief to Employers and Workers in the Commonwealth,” St. 2021, c. 9.
I report my business income on a personal income tax return. Is my forgiven PPP loan taxable?
No. Forgiven PPP loans are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes PPP loan forgiveness from gross income for 2020 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.
My business is an S corporation. Do I include forgiven PPP loans when determining how the entity-level excise on net income applies to my business?
Yes. Include forgiven PPP loans when determining whether your business’s total receipts are $6 million or more, subjecting the S corporation to the entity-level excise on net income. Your business must also include forgiven PPP loans in its total receipts when determining the rate of the entity-level excise on net income. If your business is subject to the entity-level excise on net income, do not include forgiven PPP loans when computing the amount of income upon which tax is due.
I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T). Is my forgiven loan taxable in Massachusetts?
No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, any amount forgiven for a corporate borrower would be excluded from Massachusetts gross income.
Can I deduct my business expenses paid with PPP loan proceeds?
Yes. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.
Where should I report my loan liability from my PPP loan? Do I need to report the loan if I am applying for loan forgiveness?
Yes. Even if you are applying for loan forgiveness, the initial loan should be reported as a debt instrument and categorized as a loan liability on the balance sheet, which should be categorized as either other current liabilities or long-term Liabilities.
Generally, debt is reported on the following Forms and lines numbers:
Form 355 Business/Manufacturing Corporate Excise Return: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact the Non-Income Measure Calculation.
Form 355S S Corporation Excise Return: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact the Non-Income Measure Calculation.
Form 355U Excise for Taxpayers Subject to Combined Reporting: Generally, debt would be reported on Schedule A line 20, “Bonds or Other Funded Debt” or line 24 “Miscellaneous Debt”. It could also impact Schedule U-ST Non-Income Measure Calculation.
M-990T Unrelated Business Income Tax Return: Generally, debt is not recorded on this form.
Form 3 Partnership Income: Debt is reported on Form 3 based on amounts from U.S. Form 1065, line 75 (“Other Liabilities”). A disclosure should also be made on Form 3, line 53 “during the year the partnership had any debt that was cancelled, was forgiven, or had the terms modified so as to reduce the principal amount of debt.”
Relief grants, subsidies and loan grants
Coronavirus Relief Fund Grants
A summary of information about the taxability of grants funded by the CARES Act Coronavirus Relief Fund, including certain grants awarded by the Commonwealth, or municipalities, for the 2020 tax year.
My business received a grant funded by the CARES Act Coronavirus Relief Fund that was awarded by either the Commonwealth or a municipality. Is this grant taxable income for the 2020 tax year? (Updated 01/18/22)
Yes. Federal law requires that grants to businesses be included in gross income. The IRS has stated that if governments use CARES Act Coronavirus Relief Fund payments to establish grant programs to support business, businesses receiving such grants must include the grant amount in their federal gross income. Because these grants are taxable under federal law, they are also taxable under Massachusetts law for the 2020 tax year.
Can I deduct business expenses paid with a grant funded by the CARES Act Coronavirus Relief Fund that was awarded by either the Commonwealth or a municipality? (Updated 01/18/22)
Yes. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.
Debt Relief Subsidies Paid by the Small Business Administration (SBA)
I report my business income on a personal income tax return. My business received a loan qualifying for debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act. Are these debt relief subsidies taxable income?
No. These debt relief subsidies are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act for 2020 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.
Can I deduct business expenses paid with debt relief subsidies paid by the SBA?
Yes. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.
I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received debt relief subsidies paid by the SBA pursuant to Section 1112 of the CARES Act. Are these debt relief subsidies taxable in Massachusetts?
No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such debt relief subsidies would exclude such amounts from Massachusetts gross income.
Economic Injury Disaster Loan Grants
I report my business income on a personal income tax return. My business received an Economic Injury Disaster Loan (EIDL) grant awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act. Are these EIDL grants taxable income?
No. EIDL grant amounts are not taxable for personal income taxpayers, including unincorporated businesses reporting income and expenses on Schedule C, partners in a partnership, and individual shareholders of an S corporation. Recently passed Massachusetts legislation excludes EIDL grant amounts awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act for 2020 for taxpayers subject to the Massachusetts personal income tax. Therefore, personal income taxpayers do not need to report these amounts.
Can I deduct business expenses paid with EIDL grants?
Yes. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.
I report my business income on a corporate excise return (Form 355, 355U, 355S or M-990T) and received an Economic Injury Disaster Loan (EIDL) grant awarded pursuant to Section 1110 of the CARES Act or Section 331 of the Economic Aid Act. Are these EIDL grants taxable in Massachusetts?
No. For purposes of the corporate excise, Massachusetts follows the Code as currently in effect. Therefore, a corporate taxpayer that received such EIDL grants would exclude such amounts from Massachusetts gross income.
Employees working remotely
Learn about the tax impact of telecommuting in 2020 and 2021
For Massachusetts personal income tax purposes, Massachusetts residents are generally taxed on all income from sources inside or outside of Massachusetts. Nonresidents are only taxed on items of gross income from sources within the Commonwealth, including income derived from or connected with any trade or business, including any employment, in Massachusetts. Employers must withhold Massachusetts tax on any wage income that is subject to the Massachusetts personal income tax whether the employee is a resident or a nonresident of Massachusetts.
Special rules for wages or other compensation paid to employees who worked remotely (working from home or a location other than their usual work location) due to the COVID-19 Pandemic were put in place. The special income sourcing rules adopted for telecommuting employees were intended to minimize disruption for employers and employees during the Massachusetts COVID-19 state of emergency. These rules were effective for the period beginning March 10, 2020 and ending September 13, 2021. You will find answers to commonly asked questions on this subject.
How should a nonresident telecommuting employee determine the amount of wages subject to the Massachusetts personal income tax and Massachusetts withholding in 2020?
A nonresident employee who, prior to the Massachusetts COVID-19 state of emergency, determined Massachusetts source income by apportioning based on days spent working in Massachusetts, must apportion their wages for 2020 based on either of the following:
- The percentage of the employee’s workdays spent in Massachusetts during the period January 1 through February 29, 2020 or
- If the employee worked for the same employer in 2019, the apportionment percentage properly used to determine the portion of employee wages constituting Massachusetts source income on the employee’s 2019 return.
What is a workday for purposes of determining the portion of a nonresident employee’s wages subject to Massachusetts personal income tax and Massachusetts withholding?
A workday includes any day an employee was required to work during the year (or during the period the nonresident employee worked if the nonresident employee’s job lasted less than a year). It does not include days where the nonresident employee was not required to work, such as holidays, sick days, vacations, and paid or unpaid leave. When a workday is spent working partly in Massachusetts and partly elsewhere, the day is considered a day spent working in Massachusetts, unless the nonresident can prove that he worked outside Massachusetts for more than half the day. A nonresident employee required to apportion his income to Massachusetts by calculating his workdays spent in Massachusetts must determine this apportionment percentage by dividing his workdays spent in Massachusetts by his total amount of workdays.
Can a Massachusetts resident telecommuting employee claim a credit for taxes paid to another state in 2020 if they did not physically work in the other state?
For a resident of Massachusetts, all wages are taxable, regardless of where they are earned. A resident employee who, prior to the Massachusetts COVID-19 state of emergency, worked in a state other than Massachusetts, but is now telecommuting from a location in Massachusetts due to the COVID-19 pandemic, will be eligible for a credit for taxes paid to that other state to the extent provided in M.G.L. c. 62, § 6(a) if the other state applies similar sourcing rules.
What if a nonresident’s former work location in Massachusetts closed permanently?
A nonresident who is telecommuting because of the COVID-19 pandemic must continue to report their wages to Massachusetts as they did prior to the Massachusetts COVID-19 state of emergency regardless of whether their former work location closed.
What if a nonresident who formerly worked in Massachusetts started a new job in 2020?
If a nonresident started a new job on or after March 10, 2020, the day the COVID-19 state of emergency was declared in Massachusetts, the special rules do not apply and wages earned while telecommuting from outside of Massachusetts may be apportioned based on actual days in and out of Massachusetts. For example, if a nonresident exclusively worked from home since starting the new job, none of the income would be considered Massachusetts source income.
What if my employer stopped withholding Massachusetts personal income tax or changed my withholding to a different state before Massachusetts issued guidance about the special rules on April 21, 2020?
A nonresident telecommuting employee’s 2020 personal income tax liability will be calculated based on the rules described in the guidance, with wages of nonresidents that worked in Massachusetts before the Massachusetts COVID-19 state of emergency and who are now working for the same employer in a different state being sourced to Massachusetts.
When did the COVID-related non-resident telecommuting rules expire?
The telecommuting rules that were put in place to minimize disruption for employers and employees during the Massachusetts COVID-19 state of emergency expired as of September 13, 2021.
Will DOR ask me to verify the apportionment percentage claimed on my 2020 tax return?
In some cases, DOR will ask for more information before issuing a refund for 2020. You may be asked to provide:
- A Letter from your employer outlining your telecommuting arrangement before and after the pandemic started. This letter must provide information specific to the telecommuting arrangement of the employee, including the specific days the employee worked remotely and the specific days the employee worked in Massachusetts, and how the employer tracks where the employee worked.
- A copy of your company’s telecommuting policy that specifically applied to your employment before and after the pandemic started.
Are days spent in Massachusetts due to the COVID-19 pandemic counted for purposes of establishing Massachusetts statutory residency under the 183-day presence test?
Yes. Individuals who spent more than 183 days in Massachusetts and maintained a permanent place of abode in Massachusetts are statutory Massachusetts residents for 2020, regardless of whether any such days are spent in Massachusetts due to the COVID-19 pandemic.
How should a nonresident taxpayer complete the apportionment worksheet for their 2020 Massachusetts personal income tax return?
- If a taxpayer is apportioning 2020 income based on 2019, the taxpayer should report day count in 2019 on the apportionment worksheet
- If a taxpayer is apportioning 2020 income based on January and February 2020, the taxpayer should report the day count on the apportionment worksheet
Do the special pandemic- related income sourcing rules apply to all nonresidents and residents?
No. The special income sourcing rules only apply to individuals who commuted across state lines prior to the pandemic. These individuals include:
- Nonresidents who worked in Massachusetts before the pandemic and began telecommuting (or increased their telecommuting time) outside Massachusetts due to the COVID-19 pandemic, and to
- Residents who worked outside of Massachusetts before the pandemic but began telecommuting (or increased their telecommuting time) in Massachusetts due to the COVID-19 pandemic.
What if someone has the same employer as before the pandemic but has significantly changed their role, such as now being in a management position?
If the employee worked for the same company, a change in the employee’s role has no impact on how the employee’s Massachusetts source income is calculated.
Additional Resources
Expiration of the Emergency Pandemic Income Sourcing Rules for Non-resident Employees as of September 13, 2021
Employee Withholding Requirements
What were the changes after September 13, 2021?
For the period March 10, 2020 through September 13, 2021, Massachusetts applied emergency pandemic income sourcing rules to wages or other compensation paid to employees who worked remotely (working from home or a location other than their usual work location) due to the COVID-19 Pandemic. For the period beginning after September 13, 2021, wages paid to a nonresident employee will no longer be sourced based on where the employee worked prior to the COVID-19 state of emergency. Instead, the wages for such period will generally be sourced based on where the employee’s work is actually performed.
I am a Massachusetts nonresident who, prior to the COVID-19 state of emergency, apportioned my wages based on days worked in and out of Massachusetts. Since the beginning of the state of emergency, I have telecommuted entirely from outside of Massachusetts due to the COVID-19 pandemic. How do I apportion my wages when preparing my 2021 Massachusetts personal income tax return?
For the period January 1, 2021 through September 13, 2021, apportion your wages using the same method you were required to use for the period March 10, 2020 through December 31, 2020. You would have been required to apportion wages for that period by using either:
- The percentage of your workdays spent in Massachusetts during the period January 1 through February 29, 2020 or
- If you worked for the same employer in 2019 and 2020, the apportionment percentage properly used to determine the portion of your wages constituting Massachusetts source income on your 2019 return.
For the period beginning after September 13, 2021, you must determine your workdays in and out of Massachusetts based on actual workdays spent in and out of Massachusetts, as explained in 830 CMR 62.5A.1.
Example 1: A non-resident employee worked for the same employer in 2019, 2020, and 2021. The non-resident employee spent 40% of his workdays in Massachusetts from January 1, 2020 through February 29, 2020 and he properly determined that 25% of his workdays were in Massachusetts in 2019. After the Massachusetts COVID-19 state of emergency began, the non-resident employee exclusively telecommuted from his home in another state through December 31, 2021. The non-resident employee worked a total of 240 workdays in 2021, with 160 of these workdays occurring from January 1, 2021 through September 13, 2021 and 80 occurring from September 14, 2021 through December 31, 2021.
Because he worked for the same employer in 2019 and 2020, the non-resident employee determined his Massachusetts workdays for the period March 10, 2020 through December 31, 2020 using his Massachusetts workday percentage from 2019, or 25%. The non-resident employee must similarly determine his Massachusetts workdays for the period January 1, 2021 through September 13, 2021 using his 2019 Massachusetts workday percentage. In contrast, from September 14, 2021 through December 31, 2021, the nonresident employee must determine his Massachusetts workdays based on the number of days he actually worked in Massachusetts, which would be zero. His total Massachusetts workdays for 2021 is 40 (25% x 160) plus 0, for a total of 40. To determine the portion of his wages apportioned to Massachusetts for 2021, the non-resident employee must multiply his total wages by a fraction, the numerator of which is his 40 Massachusetts workdays, and the denominator of which is his total 240 workdays.
Example 2: A non-resident employee worked for one employer in 2019 and began working for a different employer starting January 1, 2020. The nonresident employee spent 40% of her workdays in Massachusetts from January 1, 2020 through February 29, 2020. After the Massachusetts COVID-19 state of emergency began, the non-resident employee mostly telecommuted from her home in another state. The nonresident employee worked a total of 240 workdays in 2021, with 160 of these workdays occurring from January 1, 2021 through September 13, 2021 and 80 occurring from September 14, 2021 through December 31, 2021. From September 14, 2021 through December 31, 2021, the non-resident employee worked 64 of these days from her home outside of Massachusetts and worked 16 of them from her employer’s office in Massachusetts.
Because the non-resident employee began working for a new employer in 2020, she must determine her Massachusetts workdays for the period March 10, 2020 through December 31, 2020 by using her workday percentage from January 1, 2020 through February 29, 2020, or 40%. The non-resident employee must also use her workday percentage from January 1, 2020 through February 29, 2020, or 40%, to determine her Massachusetts workdays for the period January 1, 2021 through September 13, 2021.As a result, the non-resident employee had 64 (40% x 160) Massachusetts workdays from January 1, 2021 through September 13, 2021. From September 14, 2021 through December 31, 2021, the nonresident employee must determine her Massachusetts workdays based on the number of days she actually worked in Massachusetts, which would be 16. Her total Massachusetts workdays for 2021 is 64 plus 16, for a total of 80. To determine the portion of her wages apportioned to Massachusetts for 2021, the non-resident employee must multiply her total wages by a fraction, the numerator of which is her 80 Massachusetts workdays, and the denominator of which is her total 240 workdays.
I am a Massachusetts resident. Can I claim a credit for personal income taxes due to another state for 2021 if I did not physically work in the other state?
All wages of a Massachusetts resident are taxable regardless of where those wages are earned. A resident employee who, prior to the Massachusetts COVID-19 state of emergency, worked in a state other than Massachusetts, but is now telecommuting from a location in Massachusetts due to the COVID-19 pandemic, is eligible for a credit for personal income taxes on the resident employee’s wages that are due to another state. For more information about eligibility for this credit, see the DOR webpage Learn about the income tax paid to another jurisdiction credit.
What are the personal income tax consequences if I am a nonresident and I started working for a new employer in 2021?
If you started working for a new employer in 2021, the emergency pandemic income sourcing rules do not apply and from that time forward your wages earned while telecommuting from outside of Massachusetts may be apportioned based on actual workdays in and out of Massachusetts. For example, if you worked exclusively from home after starting the new job, none of the income from that job would be considered Massachusetts source income.
Employer Withholding Requirements
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Massachusetts-based companies
My Massachusetts-based company withheld Massachusetts personal income tax from wages paid to a nonresident employee using the emergency pandemic income sourcing rules. How does my company withhold after September 13, 2021?
After September 13, 2021, an employer must withhold Massachusetts personal income tax from wages paid to a non-resident employee for work performed in Massachusetts. Employers do not need to withhold Massachusetts personal income tax from wages paid to a nonresident employee for work performed in another state, even if the employee worked in Massachusetts before the Massachusetts COVID-19 state of emergency and is telecommuting from outside of Massachusetts due to the COVID-19 pandemic. To the extent that a nonresident employee works part-time in Massachusetts and also part-time in another state, the employer must withhold Massachusetts personal income tax from wages paid to the employee for the portion of the work performed in Massachusetts but will not be required to withhold from wages paid for the portion of the work performed outside Massachusetts.
What records should my company use to withhold Massachusetts personal income tax from wages paid to a non-resident employee based on the employee’s workdays in and out of Massachusetts?
If the employer’s payroll/attendance records accurately reflect the location from which the work is done, those records can be used to determine the portion of the work done in Massachusetts and as such the wages subject to Massachusetts personal income tax withholding. Alternately, the employer may use any other reasonable method to determine the portion of the nonresident employee’s work performed at locations in Massachusetts, including estimating that portion based on a certification provided by the nonresident employee if taken in good faith. The employer should retain documentation to verify its method and if it is relying on employee certification, the employer should have a signed statement from the employee attesting to the number of days the employee worked in Massachusetts or expects to work in Massachusetts.
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Companies based outside of Massachusetts
My company based outside Massachusetts has not withheld Massachusetts personal income tax from wages paid to a Massachusetts resident who worked outside of Massachusetts before the Massachusetts COVID-19 state of emergency but who subsequently has been telecommuting from Massachusetts due to the COVID-19 pandemic. How does my company withhold after September 13, 2021?
After September 13, 2021, an employer must withhold Massachusetts personal income tax on all wages paid to a resident employee for work performed in Massachusetts, regardless of whether the employee worked outside of Massachusetts before the Massachusetts COVID-19 state of emergency and regardless of whether the employee is telecommuting from Massachusetts due to the COVID-19 pandemic.
Deferred Compensation (Added 1/26/2022)
How do the emergency pandemic sourcing rules apply to deferred compensation (i.e., a bonus, exercised stock options, etc.) paid to a non-resident employee who worked in Massachusetts prior to the Massachusetts COVID-19 state of emergency, but telecommuted from outside Massachusetts due to the COVID-19 pandemic for work performed in 2021? Assume that the deferred compensation is paid to the employee in whole or in part for the period for which he or she was so telecommuting prior to September 14, 2021, but is paid out after that date.
Deferred compensation paid to a non-resident employee in whole or in part for work performed while telecommuting for a pandemic related circumstance prior to September 14, 2021 is subject to the emergency pandemic sourcing rules, even if paid after September 13, 2021 or paid in 2022. An employer paying such deferred compensation must withhold Massachusetts personal income tax on the portion of such deferred compensation that is to be sourced to Massachusetts under the emergency pandemic sourcing rules.
Unemployment Benefits and Unemployment Fraud
Are the unemployment benefits I received during 2020 taxable in Massachusetts?
While unemployment is generally taxable income for Massachusetts purposes, see additional questions below about a recent law change providing tax relief for certain unemployment income. If you received unemployment benefits or pandemic unemployment benefits during 2020, you should receive a Form 1099-G, Certain Government Payments, showing the amount of unemployment compensation received. This income must be reported on your 2020 Massachusetts Individual Income Tax return [Form 1 for residents or Form 1-NR/PY for nonresidents or part-year residents] whether you are eligible for a deduction or not.
Does Massachusetts allow a deduction for unemployment income?
As a result of a recent state law change, taxpayers with household income not more than 200% of the federal poverty level may deduct up to $10,200 of unemployment benefits from their taxable income on their 2020 and 2021 tax returns for each eligible individual. Federal law allows a deduction of up to $10,200 if the taxpayer’s federal adjusted gross income is less than $150,000. Since the Massachusetts income threshold is different from the federal income threshold, some taxpayers may be eligible for a deduction on their federal tax return but not on their Massachusetts tax return. Complete the Massachusetts Unemployment Deduction Worksheet to determine if you are eligible for a deduction.
If I’ve already filed my 2020 income tax return, should I file an amended return to claim the new deduction?
No. Do not file an amended 2020 return before you hear from us. DOR sent a communication to all taxpayers who filed a 2020 income tax return on or before April 9, 2021 reporting unemployment income. DOR will adjust tax returns automatically for most taxpayers who meet the criteria for the unemployment deduction. Starting on May 17, 2021, DOR will send notices to those who are eligible for a deduction. One week later, DOR will send notices to those who are not eligible for a deduction because their household income is more than 200% of the federal poverty level.
If I’m eligible for a deduction, will I get a refund? When will refunds be issued?
If you are eligible for the Massachusetts unemployment income deduction and DOR will adjust your return, your reported tax for 2020 will be reduced and you may be entitled to a refund. If you have no outstanding liabilities, DOR will send the refund to you in the form of a paper check. If you have outstanding tax liabilities or certain other obligations, DOR will apply any overpayment to those obligations first and issue a refund for any remaining balance. DOR will begin to issue refunds on May 20, 2021. Allow 10 to 14 days for the check to be delivered.
What if I don’t agree with DOR’s determination that I’m not eligible for the MA unemployment deduction?
If you believe you are eligible for the Massachusetts unemployment deduction, please contact us at (617) 887-6367.
When my federal return was adjusted for the unemployment deduction, other changes were made as well. Will DOR make all the same adjustments as the IRS?
DOR is only adjusting returns to allow the 2020 Massachusetts unemployment income deduction for eligible taxpayers. You may wish to file an amended Massachusetts return if your taxable unemployment income was reduced on your federal tax return and you became eligible for new or increased federal tax credits or deductions.
For example, if your federal EITC amount has increased, you are eligible for an increase in the Massachusetts EITC amount. DOR will not automatically make this adjustment for you, but you can file an amended return to claim the additional credit.
I filed my Massachusetts return and claimed a deduction for my unemployment before I saw any information about who qualifies for the deduction and how to report it on a MA return. What if I made a mistake?
As DOR reviews previously filed 2020 returns reporting unemployment, we will try to identify those that already claimed the deduction. If you qualify for the MA deduction but reported it incorrectly, we may adjust your return even if this doesn’t result in a change in tax. If you were not eligible for the deduction because your household income was above 200% of the federal poverty level, DOR will adjust your return in the future and will send a bill, which may include interest. If you know that you don’t qualify for the MA unemployment deduction and you claimed it in error, you can avoid paying interest by filing an amended 2020 return with payment of any tax due by May 17, 2021.
If I have not filed my 2020 income tax return, how can I claim the new unemployment deduction?
If you have not filed a 2020 tax return yet, you should report all your unemployment compensation on your Massachusetts return as usual using line 8a on Form 1 (for resident taxpayers) or line 10a on Form 1-NR/PY (for nonresidents or part-year residents). If you are eligible for a deduction, you should report the deduction amount on Schedule Y, line 9. Note that you may be eligible for a deduction on your federal return but not eligible for a deduction on your Massachusetts return. Complete the Massachusetts Unemployment Deduction Worksheet to determine if you are eligible for a deduction.
If I filed my 2020 Massachusetts income tax return after April 9, 2021 but did not claim an unemployment deduction, what should I do now?
If you are eligible for the Massachusetts unemployment income deduction but did not claim it on your original return, you should file an amended return. Complete the Massachusetts Unemployment Deduction Worksheet to find out if you are eligible for a deduction. File a completely new return including your total unemployment compensation as income and report the allowable unemployment deduction amount on Schedule Y, line 9.
Are unemployment benefits included in the household income calculation to determine eligibility?
Yes. The full amount of unemployment benefits received during tax year 2020 should be included in a taxpayer’s income in determining whether the taxpayer meets the household income threshold for eligibility.
Are Social Security benefits and other MA non-taxable income (such as MA and US government pensions) included in the household income calculation?
Yes. The calculation of household income follows Section 36B(d) of the Code and includes all of a taxpayer’s income, whether it is taxable or not.
If an individual who is claimed as a dependent files their own MA tax return, are they entitled to the MA unemployment deduction?
Yes. A dependent who received unemployment compensation determines whether they are eligible for a deduction based on their own information. If the dependent’s income is at or below 200% of the federal poverty level, then the dependent would be entitled to a deduction.
The number of dependents claimed on my MA return is different from the number of dependents claimed on my federal return. Which number should I use to calculate household income for the MA unemployment deduction?
When completing the MA unemployment deduction worksheet, you may use the number of dependents from your MA return if that number is higher, however, the same dependent cannot be counted as part of more than one household for purposes of calculating eligibility for the MA unemployment deduction.
On the Form 1-NR/PY (for nonresident and part-year residents), should taxpayers report all unemployment compensation even if it was not related to previous MA employment or received while a resident of MA?
When completing Form 1-NR/PY, nonresidents or part year residents should report as income the amount of unemployment compensation that would be taxable to Massachusetts without considering the new deduction. This would include unemployment received from any source while a resident of MA plus unemployment received while a non-resident that is related to MA employment. A deduction of $10,200 per individual, but not more than the unemployment reported by that individual, can then be claimed on Schedule Y. When determining if the nonresident or part year resident is at or below 200% of the federal poverty level the nonresident or part year resident must include all its income including any unemployment income that is not taxable in MA.
Is a resident taxpayer who collected unemployment compensation from another state eligible for this deduction?
Yes. For a MA resident all unemployment compensation regardless of source should be reported on the Form 1. The deduction applies to any unemployment income taxable in Massachusetts and reported on Form 1.
Does the unemployment deduction reduce my income for purposes of the Circuit Breaker Credit calculation?
No. When calculating income for the Circuit Breaker Credit, do not exclude any amount on Schedule Y, line 9 that represents a deduction for unemployment compensation.
Does the unemployment deduction reduce my Massachusetts Adjusted Gross Income (AGI) for purposes of calculating No Tax Status or the Limited Income Tax Credit?
No. When calculating MA AGI for No Tax Status or the Limited Income Tax Credit do not exclude any amount on Schedule Y, line 9 that represents a deduction for unemployment compensation.
The Massachusetts Schedule HC asks for Federal AGI from U.S. Form 1040 line 11 which includes my federal unemployment exclusion. Do I need to adjust this amount?
No. On Schedule HC you should report the amount from U.S. Form 1040 line 11 without further adjustments
What should I do if I received a Form 1099-G or unemployment compensation, but I didn’t request or receive unemployment benefits?
If you received a Form 1099-G reporting unemployment benefits but did NOT receive unemployment benefits, someone may have used your identity to falsely claim unemployment benefits. You should notify the Department of Unemployment Assistance (DUA) by filing a fraud report online or call the DUA customer service department at (877)626-6800. This income should not be reported on your Massachusetts Individual Income Tax return. After DUA reviews the fraud report, they will send a corrected Form 1099-G. Keep a copy of all Forms 1099-G with your 2020 tax records and be aware that DOR may ask for an explanation of why the amount shown on the Form 1099-G was not reported on the return.
If my unpaid tax balance is related only to unemployment income received in 2020 will penalties be waived?
Yes. If you have a balance due on your 2020 individual income tax return only because taxes were not paid on unemployment income, DOR will waive related late payment and underpayment of estimated tax penalties through December 31, 2021. After that date, if you have not paid your 2020 taxes in full, penalties will begin to accrue. Interest will be charged on any balance not paid by the return due date, May 17, 2021.
Will I be notified of penalties related to tax due on unemployment income or will DOR automatically waive those penalties?
The penalty waiver is automated, and you will not receive notice of any waived penalties. You will only receive a notice about taxes and interest due if you did not pay in full by May 17, 2021. If you are billed for penalties and believe you should have been waived, you can file an appeal through MassTaxConnect.
Can I enter into a payment agreement to pay the outstanding taxes due to unpaid unemployment income taxes for 2020?
Yes. A payment agreement can be established. While no penalties will be assessed through December 31, 2021, interest will still be due.