Major 2019 Tax Changes

Below you will find descriptions of major Massachusetts Personal Income tax law changes for 2019 as seen on pages 3-5 of the 2019 Form 1 and pages 3-6 of the 2019 Form 1-NR/PY instruction booklets.

Filing Due Dates

Form 1 is due on or before April 15, 2020.

2019 Personal Income Tax Rates

Effective for tax years beginning on or after January 1, 2019, the tax rate on most classes of taxable income is changed to 5.05%. The tax rate on short-term gains from the sale or exchange of capital assets and on long-term gains from the sale or exchange of collectibles (after a 50% deduction) remains at 12%.

Penalty for Failure to Obtain Health Insurance

Massachusetts requires most adults 18 and over with access to affordable health insurance to obtain it. In 2019, individuals must be enrolled in health insurance policies that meet minimum creditable coverage standards defined in regulations adopted by the Commonwealth Health Insurance Connector Authority (Health Connector).

Individuals who are deemed able to afford health insurance but fail to obtain it are subject to penalties In Massachusetts for each month of noncompliance in the tax year (provided that there is no penalty in the case of a lapse in coverage of 63 consecutive days or less). The monthly penalties, which will be imposed through the individual’s personal income tax return, are set out in Technical Information Release (TIR) 19-1 and are based on half of the minimum monthly insurance premium for which an individual would have qualified through the Health Connector.

Note: For tax years beginning on or after January 1, 2019, a taxpayer who does not have health insurance that meets the federal standard of minimum essential coverage will no longer be subject to the federal shared responsibility payment (federal healthcare penalty).

Schedule HC, Health Care Information, must be completed by all full-year and certain part-year residents age 18 and over to notify DOR whether or not they had health insurance for each month of 2019. Taxpayers who did not have coverage for all of 2019, or had a gap in coverage of four or more consecutive months will need to determine if they had access to affordable health insurance (through an employer, the government, or on their own) using worksheets and tables available for this purpose. If it is determined that a taxpayer could have afforded health insurance, the taxpayer has the right to appeal the application of the penalty due to hardship by requesting an appeal to the Connector on the Schedule HC.

For more information about the health care reform law, including the Department’s regulation at 830 CMR 111M.2.1, Health Insurance Individual Mandate; Personal Income Tax Return Requirements, or the Health Connector’s regulation at 956 CMR 6.00, Determining Affordability for the Individual Mandate, see the Health Connector’s website at mahealthconnector.org or the Department’s website at mass.gov/dor.

Annual Update of Circuit Breaker Tax Credit

Taxpayers age 65 or older who own or rent residential property located in Massachusetts are allowed a credit equal to the amount by which their real estate tax payments, or 25% of the rent constituting a real estate tax payment, exceeds 10% of the taxpayer’s total income, not to exceed $1,130. 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 2019 must not exceed $808,000. For purposes of calculating the credit, total income and maximum credit thresholds are adjusted annually. For tax year 2019, an eligible taxpayer’s total income cannot exceed $60,000 in the case of a single filer who is not a head of household filer; $75,000 for a head of household filer; and $90,000 for joint filers. In order to qualify for the credit, a taxpayer must be age 65 or older and must occupy the property as his or her principal residence. See TIR 19-13.

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

Massachusetts adopts Internal Revenue Code (“IRC”) § 132(f) as amended and in effect on January 1, 2005, which excludes from an employee’s gross income (subject to a monthly maximum) employer-provided parking, transit pass, and commuter highway vehicle transportation benefits. For tax year 2019, the IRS has calculated, based on inflation adjustments contained in IRC § 132(f) as effective on January 1, 2005, the 2019 monthly exclusion amounts of $265 for employer-provided parking and $140 for combined transit pass and commuter highway vehicle transportation benefits. Massachusetts adopts these 2019 monthly exclusion amounts as they are based on the IRC as effective on January 1, 2005. See TIR 18-12.

Increase in the Massachusetts Earned Income Tax Credit

Effective for tax years beginning on or after January 1, 2019, the amount of the Massachusetts EITC an individual may claim is 30% of the computed federal credit. For a person who is a non-resident for part of the taxable year, the EITC will be limited to 30% of the federal credit multiplied by a fraction, the numerator of which is the number of days in the taxable year the person resided in the Commonwealth and the denominator of which is the total number of days in the taxable year. For more information see TIR 18-13.

Increase in the Annual Amount of Dairy Farm Credits Available

The total cumulative amount of dairy farm credits authorized for personal income tax and corporate excise purposes was increased from $4,000,000 annually to $6,000,000 annually. For more information see TIR 18-13.

Modifications to the Abandoned Building Deduction

Effective for tax years beginning on or after January 1, 2019, the statute no longer requires the abandoned buildings be located in “Economic Opportunity Areas” designated by the Economic Assistance Coordinating Council (“EACC”) to be eligible for the abandoned building deduction. Instead, the EACC need only “certify” the abandoned building project. MGL ch 62, § 3.B(10). For more information see TIR 18-13.

Paid Family and Medical Leave Contributions

Effective October 1, 2019, employers are required to withhold Paid Family and Medical Leave (PFML) contributions from employees and certain self-employed individuals based on their earnings. PFML contributions will fund PFML benefits, which will be available starting January 1, 2021. For more information about the PFML program, including how PFML contributions are calculated, see 458 CMR 2.00, and Department of Family and Medical Leave’s website at mass.gov/orgs/department-of-family-and-medical-leave.

Taxation of the Income of Military Servicemembers and their Spouses

The Military Spouses Residency Relief Act (“MSRRA”) has been amended by P.L. 115-407, enacted December 31, 2018, effective for tax years beginning on or after January 1, 2018. The amendment adds a new provision to the MSRRA that permits the spouse of a servicemember in certain circumstances to elect on a year-by-year basis to use the servicemember’s state of residence for purposes of taxation. For further information on the Massachusetts implications of the federal law, see TIR 19-15.

Changes Related to Federal Tax Reform

As a general rule, Massachusetts does not adopt any federal personal income tax law changes incorporated into the IRC after January 1, 2005. However, certain specific Massachusetts personal income tax provisions, as set forth in MGL ch 62,
§ 1(c), automatically conform to the current IRC.

Provisions of the IRC Massachusetts adopts on a current basis are:

• Roth IRAs;
• RAs;
• 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.

On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act (“TCJA”), was signed into law. The TCJA provides for federal changes to a variety of provisions in the IRC that affect the personal income tax. The following explains some of the Massachusetts personal income tax treatment of various changes in the TCJA. See mass.gov/dor for DOR’s public written guidance on the impact of certain provisions of the TCJA, including TIRs 18-14, 19-6, 19-7 and 19-11.

Internal Revenue IRC Provisions Massachusetts Adopts

Certain Combat Zone Compensation (IRC § 112)

Compensation received by certain military personnel for services performed in designated combat zones is excluded from federal gross income. Under the TCJA, the Sinai Peninsula of Egypt is treated as a combat zone as of June 9, 2015 for purposes of IRC § 112. Massachusetts adopts this change because of the way in which Massachusetts conforms to IRC § 112.

Entertainment Business Expenses (IRC § 274)

For tax years beginning before 2019, 50% of certain entertainment expenses incurred in the course of business were deductible. Entertainment expenses are no longer allowed as a federal deduction. Massachusetts adopts this change as Massachusetts follows the current IRC in effect for trade or business expenses under IRC § 62(a)(1).

Employee Business Expense Deductions (IRC § 67(a))

Beginning with the 2019 tax year, miscellaneous itemized deductions that are subject to the 2% adjusted gross income limitation are suspended. Deductions that are suspended include expenses:

• For travel, meals and lodging while away from home, or expenses for transportation paid or incurred by the taxpayer in connection with the performance of services as an employee; or
• That are attributable to a trade or business carried on by the taxpayer, if such trade or business consists of the performance of services by the taxpayer as an employee, are no longer allowed as federal deductions. Massachusetts adopts these changes because Massachusetts does not allow these deductions unless they are itemized deductions on a federal return under MGL ch 62, § 2(d)(2).

Election to Expense Certain Depreciable Business Assets (IRC § 179)

Expense amounts related to depreciable property that can be deducted as a trade or business expense are increased for certain types of property, such as sport utility vehicles and real property. Massachusetts adopts this change as Massachusetts follows the current IRC in effect for trade or business expenses under IRC § 62(a)(1).

Interest Expense Deduction Limitations (IRC § 163(j))

Beginning with the 2019 tax year, a trade or business deduction for net business interest in a given taxable year is now limited to 30% of adjusted taxable income, and the excess is carried forward. Massachusetts adopts this change as Massachusetts follows the current IRC in effect for trade or business expenses under IRC § 62(a)(1).

Gambling Losses (IRC § 165(d))

The deduction for gambling losses has been limited. For tax years beginning before 2019, a professional gambler could deduct all trade or business expenses incurred in gambling activities, and could deduct gambling losses up to the amount of gambling winnings. Under the TCJA, all deductions for both business expenses and losses are capped at the amount of winnings. Massachusetts adopts this change as Massachusetts follows the current IRC in effect for trade or business expenses under IRC § 62(a)(1).

Eligible 529 Plan Expenses (IRC § 529)

Eligible 529 Plan Expenses (IRC § 529) New provisions allow 529 plan account funds to be used for elementary or secondary school expenses, up to $10,000 per year. Massachusetts adopts this change as Massachusetts follows the current IRC with respect to IRC § 529.
 

Medical Expenses (IRC § 213)

Taxpayers are allowed a deduction for medical expenses for amounts that exceed a certain percent threshold of their federal adjusted gross income. Under the TCJA, the threshold was decreased from 10% to 7.5% of federal adjusted gross income for the 2019 tax year. The deduction is available only to those taxpayers who itemize their deductions. Taxpayers that take the standard deduction, which has been increased for 2019, are not eligible to take the deduction for medical expenses. Massachusetts adopts this change. Massachusetts allows a deduction for medical expenses under MGL ch 62, § 3B(b)(4) equal to the federal deduction only for taxpayers that itemize deductions on a federal return.
 

Contributions to Qualified ABLE Programs (IRC § 529A)

The TCJA made several changes to IRC § 529A including increasing the limitation for contributions from compensation of individuals with disabilities. Massachusetts adopts these changes as Massachusetts follows the current IRC with respect to IRC § 529A.
 

Inclusion of GILTI in Gross Income; Dividend Treatment (IRC § 951A)

The TCJA added new IRC § 951A, which requires U.S. individual shareholders of a controlled foreign corporation (CFC) to include their pro rata share of the CFC’s global intangible low-taxed income (GILTI) in federal gross income each year, starting with taxable years beginning after December 31, 2017. This income is also subject to the dividend gross-up rules set out in IRC § 78. Massachusetts adopts this change as Massachusetts follows the current IRC with respect to IRC § 951A. GILTI income is treated as Part A dividend income under MGL ch 62. A taxpayer with GILTI income must complete a Schedule FCI-I.
 

Inclusion of Deemed Repatriated Income in Gross Income; Dividend Treatment (IRC § 965)

The TCJA amended IRC § 965 to require CFCs and certain other foreign corporations to increase their Subpart F income by an amount equal to the deferred foreign earnings of the foreign corporation that has accumulated since 1986 (“deemed repatriated income”). This income is also subject to the dividend gross-up rules set out in IRC § 78. The TCJA imposed a one-time federal transition tax on the corresponding income inclusion by U.S. shareholders. Under IRC § 965(h), a shareholder may elect to pay the federal net tax liability attributable to deemed repatriated income over a period of eight years. Under IRC § 965(i), an S corporation shareholder may elect to defer the tax liability attributable to deemed repatriated income until the taxable year in which a triggering event occurs with respect to the liability.

Following legislation enacted in 2018 and 2019, Massachusetts now follows the current IRC with respect to IRC §§ 951, 951A, 959, and 965. Deemed repatriated income is treated as Part A dividend income under MGL ch 62. For individual taxpayers, deemed repatriated income will be taken into account in the taxable year ending December 31, 2019, with a deduction equal to 60% of such income.

In the case of an individual taxpayer with deemed repatriated income who, for federal purposes, made an election under IRC § 965(h) or IRC § 965(i), the tax liability attributable to such income will be due in 8 installments, but the deferral provisions of IRC § 965(i) do not apply. A taxpayer with deemed repatriated income must complete a Schedule FCI-I.

Changes in Overall Accounting Method (IRC § 448)

Under IRC § 448(c) as amended by the TCJA, a corporation, or a partnership may use the cash method of accounting if the average annual gross receipts of such entity for the 3-taxable-year period
ending with the taxable year that precedes such taxable year does not exceed $25,000,000. Massachusetts law requires that a personal income taxpayer use the same method of accounting for Massachusetts purposes as it does federally. Additionally, flow-through entities with individual members or partners that change their method of accounting for federal tax purposes must also change their method for Massachusetts purposes.

IRC Provisions Massachusetts Does Not Adopt

Deductions for Personal Exemptions (IRC § 151)

Personal and dependent exemption deductions are eliminated under the TCJA. Massachusetts does not adopt this change because Massachusetts law does not tie to the federal exemption amounts. Massachusetts law on dependent exemption deductions as provided in MGL ch 62, § 3 refers to the federal definition of dependents which remains in effect.

Moving Expense Deduction (IRC § 217)

For tax years beginning before 2019, if you moved due to a change in your job or business location or because you started a new job or business, you can deduct reasonable unreimbursed moving expenses if you meet all of the following requirements:

• Your move was closely related to the start of work;
• You meet a distance test; and
• You meet a time test.

Under the TCJA, a deduction for moving expenses is no longer allowed except for certain members of the Armed Forces. Massachusetts does not adopt this change. A deduction for moving expenses continues to be allowed if the above requirements are met as Massachusetts follows IRC § 217 in effect as of January 1, 2005.

Moving Expense Reimbursement (IRC §132(g))

For tax years beginning before 2019, moving expense reimbursements made to employees by their employers were not included in federal gross income. Moving expense reimbursements made to employees, other than certain members of the Armed Forces, by their employers are now included in federal gross income. Reimbursements will be included in employee wages. Massachusetts does not adopt this change as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue.

Bonus Depreciation Deduction (IRC §168(k))

Various changes were made to the provisions in IRC 168(k) related to bonus depreciation. Massachusetts does not adopt any of these changes as Massachusetts specifically disallows the bonus depreciation deduction under MGL ch 62, § 2(d)(1)(N).

Qualified Business Income Deduction (IRC § 199A)

Under the TCJA, a new deduction is allowed for 20% of qualified business income earned in a qualified trade or business, subject to certain limitations. Although Massachusetts follows current IRC § 62(a)(1) in effect for trade or business expenses, the TCJA specifically excludes the deduction in IRC § 199A from IRC § 62(a)(1). Therefore,
Massachusetts follows the IRC in effect as of January 1, 2005, on this issue and does not adopt the change.

Income from Discharge of Indebtedness(IRC § 108(f)(5))

The exclusion from federal gross income for amounts discharged from certain student loan debt is broadened to include discharges on account of death and disability. Massachusetts does not adopt this change as Massachusetts follows IRC § 108 in effect as of January 1, 2005.

Excess Business Loss Deduction (IRC § 461(I))

For non-corporate taxpayers, business losses in excess of certain thresholds are now capped in a taxable year, with the remainder carried forward as a net operating loss. Massachusetts does not adopt this change as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue.

Qualified Equity Grant Programs (IRC § 83(i))

For tax years beginning before 2019, amounts from non-qualified stock options and restricted stock units were included in federal gross income at the time they were exercised or deemed transferred. New provisions allow taxpayers to elect to defer income from this type of stock for up to 5 years. Massachusetts does not adopt this change. Amounts from these types of options continue to be included in Massachusetts gross income in the year exercised or deemed transferred as Massachusetts
follows the IRC in effect as of January 1, 2005, on this issue.

Alimony Income (IRC § 61(a))

Under the TCJA, alimony will no longer be deductible by the payor or includable in federal gross income by the recipient for divorce or separation instruments signed after December 31, 2018. Massachusetts does not adopt this change. Alimony will continue to be deductible by the payor and included in Massachusetts gross income of the recipient, as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue.

Like–Kind Exchanges (IRC §1031)

Under the TCJA, beginning in 2019 like–kind exchange treatment is limited to real property. All other property, including personal property and intangible property, is no longer eligible for the deferral of gain provided by IRC §1031. Massachusetts does not adopt this change for purposes of the personal income tax, as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue.

Deferral of Gain Invested in Qualified Opportunity Zones (IRC §§ 1400Z-1 and 1400Z-2)

Under the TCJA, effective December 22, 2017, taxpayers may elect to defer gain from the sale or exchange of any property to an unrelated party by reinvesting that gain within 180 days of the sale or exchange in a “qualified opportunity fund,” an investment vehicle organized as a corporation or partnership for the purpose of investing in “qualified opportunity zones.” Massachusetts does not adopt this change for purposes of the personal income tax, as Massachusetts follows the IRC in effect as of January 1, 2005, on this issue.