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Differences between Massachusetts state tax law and federal tax law for personal income

General overview of the most common differences between the federal and Massachusetts state tax treatment of personal income.

Updated: June 11, 2021

Table of Contents

Overview

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. 

The following is a summary of the most common differences between the IRC and Massachusetts tax code for personal income tax purposes. This list is not all inclusive and will be updated regularly, please continue to check our website for more updates.

Income

Income Items Included in Massachusetts Taxable Income but not Federal Taxable Income
 
  • Alimony received is generally included in Massachusetts taxable income although it may not be subject to federal tax.
    • Tax Cuts and Jobs Act of 2017 Repeal of deduction for alimony payments.
      For a divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after, alimony is no longer deductible by the paying spouse or counted as income for the receiving spouse, on Federal tax returns only. For Massachusetts tax purposes, alimony continues to be deductible by the paying spouse and counted as income for the receiving spouse.
    • Massachusetts law about alimony
    • Alimony
       
  • Olympic and Paralympic Medals and Prizes are included in Massachusetts taxable income based on the amount of cash winnings and the price of bullion contained in the medals, although these items are not subject to federal tax.
  • Public Safety Officers’ Death Benefits are included in Massachusetts taxable income but are not subject to federal tax if the officer dies from injuries incurred in the line of duty.
     
  • Student Loans Discharged on Account of Death or Disability are included in Massachusetts taxable income but not federal taxable income. Massachusetts follows IRC §108 in effect as of January 1, 2005.
     
  • Transportation Fringe Benefits are partially excludable from both Massachusetts and federal taxable income.  However, the maximum exclusion is higher for federal purposes. 
  • Wrongfully Incarcerated Individuals may exclude amounts received as legal damages resulting from their wrongful incarceration for federal tax purposes, but such damages are included in Massachusetts income.
     
  • Mortgage Debt Forgiveness results in taxable cancellation of debt income in Massachusetts but such income is excluded from federal taxable income if the debt is forgiven on or before January 1, 2021.
Income Items Included in both Massachusetts and Federal but with differences
 
  • Capital Gains Massachusetts taxes long term gains are taxed at 5 % and short-term gains are taxed at 12%. Federally gains are taxed at varying rates. 
  • Capital Losses can be applied against gains and ordinary income up to $3,000 for federal tax purposes. Massachusetts allows you to offset losses against all gains (offset limited to amount of gains) and $2,000 against interest and dividends. Losses cannot be used  against 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 Income Social Security benefits are not included in Massachusetts gross 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.  

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Deductions

Deductions Allowed for Massachusetts Purposes but not for Federal Purposes
 
  • Alimony paid is generally deductible in Massachusetts although it may not be deductible for federal tax purposes.  
    • Tax Cuts and Jobs Act of 2017 Repeal of deduction for alimony payments.
      For a divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after, alimony is no longer deductible by the paying spouse or counted as income for the receiving spouse, on Federal tax returns only. For Massachusetts tax purposes, alimony continues to be deductible by the paying spouse and counted as income for the receiving spouse.
    • Massachusetts law about alimony
    • Alimony
       
  • Clean-Fuel Vehicle acquisition cost is partially deductible for Massachusetts purposes, but no federal deduction is allowed.
     
  • 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
    You can deduct certain commuting costs against your Form 1 or 1-NR/PY income for:
  • Moving Expenses are deductible for Massachusetts purposes although the federal deduction has been suspended for federal purposes for most taxpayers. 
  • Dependent Exemptions Federally, dependent exemptions are not allowed for those who would otherwise be dependents but also file their own income tax returns and claim personal exemptions. Dependents who file their own income tax returns for Massachusetts purposes may be claimed as dependents in Massachusetts.   
  • Rental Deduction is allowed for Massachusetts purposes for rent paid by the 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. Rental deduction is not allowed for Federal purposes.
  • Social Security (FICA) and Medicare Deduction Taxpayers may claim a deduction for the amount contributed (up to a maximum of $2,000) in the tax year to:
Federal Deductions Disallowed for Massachusetts Purposes
 
  • Teacher’s expenses are deductible up to $250 for federal purposes but no deduction is allowed for Massachusetts purposes.
     
  • Whistleblower attorney’s fees with respect to securities and commodities trading are deductible up to $250 for federal purposes but no deduction is allowed for Massachusetts purposes.
     
  • Excess Business Losses are disallowed as a deduction for both Massachusetts and federal purposes. However, such losses disallowed as a federal deduction may be carried forward and deducted as net operating loss. No such carry forward or deduction is allowed for Massachusetts purposes.
     
  • Deduction for Qualified Business Income allows taxpayers to take a 20 percent deduction for qualified income from a qualified trade or business operated directly or through a pass-through entity for federal purpose, but no deduction is allowed for Massachusetts purposes.
  • Qualifying Widow(er) Massachusetts offers all but the qualifying widow(er) with dependent child. Generally, if you claim this status federally, you qualify for head of household for Massachusetts.
Deduction Items Included on both Massachusetts and Federal but with differences
 
  • Claim of Right Deduction For Federal purposes if the amount you repaid was $3,000 or less, a Claim of Right deduction is not allowed. Massachusetts allows the deduction in the year of repayment, provided the amount was previously included in Massachusetts taxable income and the repayment isn’t 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 2 student loan interest deductions for interest paid on a "qualified education loan” up $2,500
    • The federal deduction is for both graduate and undergraduate student loan interest paid and Reported on Schedule Y, Line 10, which has a maximum amount allowed
    • The Massachusetts deduction for interest paid on a qualified undergraduate student loan which is Reported on Schedule Y, Line 12, is unlimited
    • The same taxpayer may claim both deductions on the same return, provided the deductions are not taken for the same interest payments.
  • Itemized Deduction  Massachusetts allowable deductions differ from itemized deductions on Schedule A of U.S. Form 1040. 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 which those properties are placed in serviceMassachusetts allows the Section 179 deduction on a limited basis and disallows the bonus depreciation deduction.
  • Adoption Expenses For Federal purposes you are allowed a credit that has a limitation amount.  Massachusetts allows a deduction for the full amount of fees paid to a licensed adoption agency.
  • 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 your winnings from such establishments or race meetings.
  • Qualified Small Business Stock Massachusetts does allow the section 1202 tax exclusion on capital gains from the sale of qualified small business stock, with modifications. The state follows the same qualified small business guidelines, but the business must be incorporated on or after January 1, 2011 and stock must be acquired within five years of the businesses incorporation. Also the state follows the same investor qualification guidelines and rules for after the stock is acquired, except the holding period for Massachusetts is three years not five. If the guidelines and rules are followed, the capital gains will be taxed at a rate of 3% instead of the state’s long-term capital gains tax of 5.0%.

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Credits

Credit Items Allowed for both Massachusetts and Federal 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 personal state income tax return if your property taxes or rent exceed specified thresholds. The Circuit Breaker tax credit is based on the actual real estate taxes paid on the Massachusetts residential property you own or rent and 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. If you don't qualify for No Tax Status but your Massachusetts AGI still doesn't 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 You can get an energy credit for purchasing and installing solar/wind systems in residential property. This credit is not the same as the federal credit for energy efficiency items and is not allowable for Federal purposes.

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