MASSACHUSETTS/FEDERAL TAX DIFFERENCES

Massachusetts tax law is similar to but not the same as federal. When examining the differences keep these 4 considerations in mind:

MA defines income by reference to the IRS Code (IRC). In current law there are 2 sets of references:

For the definition of gross income the Code now in effect is that of 1/1/2022. All changes that effect gross income made to the IRC after that date are not recognized.
In the case of sale of principal residence, trade or business deductions, retirement plans & ROTH IRAs, the reference is always to the current code.

Article 44 of the MA Constitution requires that the same class of income must be taxed at the same rate. This is the reason why there are different classes of income and why MA cannot have a graduated income tax rate.
MA does not allow federal itemized deductions.
MA has several additional deductions of it’s own. An example would be medical or adoption deduction, which are specifically allowed in MA law.
The Massachusetts estate tax references the Federal Tax code as of 12/31/2000 with a $1,000,000 exemption.
For more information see the Massachusetts Department of Revenue website.

A List of Common Federal/Massachusetts Tax Differences:
Item of Income or Deduction	Federal Treatment	Massachusetts Treatment
Capital Losses	Deductible against gains in part against income Ð Carry forward available	MA has its own treatment without regard to the Federal law
Capital Gains	Calculated @ varying rates	MA taxes long term gains at 5.2% and short term gains at 12%
Excess Trade or Business Deductions	Does not exist federally	Concept reinstated as of 1/1/96
Interest on Student Loans	Allowed as a deduction against AGI on page one of the 1040 up to $2,500	Fully deductible, not limited by federal law
Adoption Expenses	Federal credit	Fees fully deductible in year paid
ROTH IRAs	Non-deductible contribution Ð Distributions tax free	MA treatment the same
Education IRAs	Non-deductible contribution Ð Distributions tax free	MA treatment the same
Sale of Principal Residence	Excludes $250K or $500K if qualified	MA treatment the same
Section 162 "Trade or Business" Expenses	Deductible	MA treatment the same
Section 179 Depreciation	Allowable write-off in 2014 - $500K	MA treatment the same
SIMPLE plans for Employees	Excluded from gross income	MA treatment the same
SIMPLES for the Self-employed	Deducted from AGI	Not allowed as a deduction
Qualified Transportation Fringe Benefits	Allows employer parking, van pool, etc.	MA treatment the same
Moving Expense	Excluded from income	Excluded from income
Employer Contributions to MSA	Excluded from income	Excluded from income
Self-Employed Health Insurance	100% deductible	100% deductible
Real Estate Professionals	A concept allowed since 1996	Now recognized
Depreciation	Federal life & rate based on code of year put into service	Previously limited to code of 1998, now the depreciation will conform exactly to the federal amount except for bonus depreciation
1231 Property	If gain, property is taxed as if a capital asset Ð If sale is a loss it is taxed as if ordinary income subject to recapture	MA law makes it a capital asset always, not subject to recapture as ordinary income

This material courtesy of Philip Dardeno, CPA MST.

Quick Access

More Tips & Guides

The Reference Section

Pay With Credit Card

MASSACHUSETTS/FEDERAL TAX DIFFERENCES

A List of Common Federal/Massachusetts Tax Differences:

Item of Income or Deduction

Federal Treatment

Massachusetts Treatment