Differences Between MA and Federal Tax Law For Personal Income

General overview of the most common differences between Massachusetts and federal tax treatment of personal income — for tax years beginning on or after January 1, 2022.

Updated: March 3, 2023

Table of Contents

Overview

For personal income tax purposes, for tax years beginning on or after January 1, 2022, Massachusetts generally follows the provisions of the Internal Revenue Code (IRC) as amended and in effect on January 1, 2022. In the case of certain IRC sections, however, Massachusetts specifically adopts the IRC as currently in effect. 

The following is a summary of the most common differences between the IRC and Massachusetts tax code for personal income tax purposes for 2022 tax years and thereafter.

For differences between Massachusetts state tax law and federal tax law for any prior tax year, see the personal income tax form instructions for that year.  

Income items included in both Massachusetts and federal taxable income but with differences:

  • Capital Gains Massachusetts taxes long-term gains at 5% and short-term gains at 12%. The federal rate on capital gains varies.
  • Capital Losses can be applied against gains and ordinary income up to $3,000 for federal tax purposes. Massachusetts allows losses to offset any amount of gain (offset limited to amount of gain) and to offset up to $2,000 of interest and dividends. Capital losses cannot be used against other ordinary income.
     
  • Traditional IRA Contributions are not deductible for Massachusetts personal income tax purposes. However, they may be deductible for federal tax purposes depending on the taxpayer’s income level and whether the taxpayer has an employer-sponsored retirement plan.
     
  • Traditional IRA Distributions are taxable for both Massachusetts and federal tax purposes if the distribution exceeds the amount of IRA contributions that were previously subject to tax. However, the amount of previously-taxed contributions may be different for state and federal purposes, resulting in different includable amounts.
     
  • Roth IRA Contributions are not deductible for either Massachusetts or federal purposes.
     
  • Roth IRA Distributions in excess of contributions are excluded from federal income if certain age and holding period requirements are met.  Such distributions are excluded from Massachusetts income to the extent that they are excluded from federal income.
     

Income items included in federal taxable income but not Massachusetts taxable income

  • Social Security benefits are not included in Massachusetts income. For federal purposes, these benefits may be included in federal gross income depending on income thresholds.
  • Pension Income is generally included in both Massachusetts and federal income. However, income from certain government pensions is excluded from Massachusetts income. Pensions eligible for the exclusion include those paid by the Commonwealth and its cities and towns, contributory plans of other states, and contributory plans of the federal government.

Deductions

Deductions allowed for Massachusetts purposes but not for federal purposes:

  • College Tuition Deduction - Massachusetts allows a deduction for tuition payments paid by taxpayers for themselves, their spouses, and their dependents who attend a qualifying two- or four-year college leading to an undergraduate or associate degree, diploma or certificate.
    The deduction is equal to the amount by which the tuition payments, less any scholarships, grants or financial aid received, exceed 25% of the taxpayer's Massachusetts adjusted gross income.
  • Commuter Deduction – Massachusetts allows a deduction for certain commuting costs:
  • Carryover of Disallowed Excess Business Losses – Excess business losses are disallowed as a deduction for both federal and Massachusetts tax purposes.  Excess business losses that are disallowed may be carried forward and deducted for federal purposes as net operating losses.  Massachusetts does not adopt the federal net operating loss deduction. Therefore, excess losses that are disallowed for Massachusetts purposes cannot be carried forward. 
     
  • Rental Deduction – Massachusetts allows a deduction for rent paid by a taxpayer during the tax year to a landlord for a principal residence located in Massachusetts. This deduction is limited to 50% of the rent paid and cannot exceed a total deduction of $3,000.

Federal deductions disallowed for Massachusetts purposes:

  • Deduction for Qualified Business Income – The IRC allows taxpayers to take a 20% deduction for qualified income from a qualified trade or business operated directly or through a pass-through entity for federal purposes, but the deduction is not allowed for Massachusetts purposes.
  • Standard Deduction - Massachusetts does not allow the federal standard deduction. Personal and dependent exemptions are allowed as specified on Massachusetts form(s).  Further, Massachusetts does not provide a filing status corresponding to the federal status of Qualifying Widow(er) with dependent child. Generally, if you claim this status for federal tax purposes, you qualify for head of household for Massachusetts purposes. 

Deductions allowed for both Massachusetts and federal purposes but with differences

  • Claim of Right Deduction – For federal purposes, a “claim of right” deduction is allowed only if the amount repaid was more than $3,000. Massachusetts allows the deduction without regard to the amount paid, provided the amount was previously included in Massachusetts taxable income and the repayment is not otherwise deductible in determining Massachusetts income. 
  • Interest on Student Loans – For federal purposes, a deduction is allowed for interest paid by the taxpayer, up to an annual maximum of $2,500, for a qualified education loan for both undergraduate and graduate education subject to taxpayer income limitations.

    Massachusetts allows two deductions for interest paid on a "qualified education loan”:
    • Massachusetts conforms to the federal deduction, which is capped at $2,500
    • Massachusetts has its own deduction for interest paid on a qualified undergraduate student loan, which is unlimited
    • A taxpayer may claim both deductions on the same return, provided the deductions are not taken for the same interest payments.
  • Itemized Deductions - Massachusetts does not allow federal Schedule A deductions. You may claim only the deductions specified on Massachusetts form(s).
     
  • Section 179 and Bonus Depreciation – A federal deduction is allowed for the cost of specified properties in the year in which those properties are placed in service. Massachusetts allows the Section 179 deduction but disallows the bonus depreciation deduction. To claim the Section 179 deduction for Massachusetts purposes a taxpayer must have claimed it for federal purposes.
  • Adoption Expenses – Massachusetts allows an exemption for the full amount of fees paid to a licensed adoption agency. For federal purposes a credit may be allowed for such fees, subject to limitations.
  • Gambling Losses – Massachusetts gambling losses are deductible only if incurred at a gaming establishment or race meeting licensed by the Commonwealth. The deduction is limited to the amount of winnings from such establishments or race meetings. A federal deduction may be allowed for gambling losses but is determined and reported under different rules. 
  • Qualified Small Business Stock – The IRC excludes from income capital gain on the sale of qualified small business stock as defined in IRC section 1202. Massachusetts conforms to that exclusion. In addition, Massachusetts imposes a reduced tax rate of 3% on capital gains on the sale of certain other small business stock that is not eligible for the federal exclusion (in particular, stock in an S corporation), so long as it meets certain other requirements.

Credits

Credit items allowed for both Massachusetts and federal purposes but with differences:

  • Earned Income Tax Credit (EITC) – For federal purposes EITC is available for low to moderate income workers. Massachusetts allows an EITC equal to 30% of the amount of the federal credit.

Credit items allowed for Massachusetts purposes but not for federal purposes

  • Senior Circuit Breaker Credit As a senior citizen, you may be eligible to claim a refundable credit on your Massachusetts personal income tax return if your property taxes or rent exceed specified thresholds. The Circuit Breaker credit is based on the real estate taxes or rent you paid on the Massachusetts residential property occupy as your principal residence. This credit is not available for federal purposes.
  • No Tax Status and Limited Income Tax Credit (LITC) In Massachusetts, if your income does not exceed a specified threshold, you are not required to pay state taxes (this is referred to as “No Tax Status”). If you do not qualify for No Tax Status but your Massachusetts AGI does not exceed other specified limits, you might qualify for the Limited Income Credit (LIC), which can lower your taxes. This credit is not available for federal purposes.
  • Septic System Credit  An owner of a residential property located in Massachusetts who occupies the residential property as his or her principal residence may claim a credit against personal income tax for the repair or replacement of a failed cesspool or septic system. This credit is not available for federal purposes.
  • Lead Paint Removal Credit  You can get a tax credit if you own residential property in Massachusetts and paid for de-leading (removing or covering lead paint). The credit is allowed for up to $1,500 of qualified de-leading expenses per residential unit.  There is no federal credit for these expenses.
  • Solar, Wind and Energy Credit – A credit is allowed for purchasing and installing solar or wind systems on residential property. This credit is not the same as the federal credit for energy efficiency items and is not available for federal purposes.

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