Massachusetts ‘Decoupled’ from Internal Revenue Service

Many taxpayers believe that Massachusetts Department of Revenue follows the same Federal Internal Revenue Code (IRC) for all tax matters,

which is not true.

Effective January 1, 2005 Massachusetts “decoupled” from the Internal Revenue Code. What does “decoupled” mean? It means Massachusetts follows the IRC as of January 1, 2005, without any future updates or amendments by the Federal Government unless specifically added to the Massachusetts General Laws by the Commonwealth of Massachusetts Legislature.   There are specific Individual Income Tax rules Massachusetts has adopted on a current basis pursuant to Massachusetts General Law Chapter 62, Chapter 1 (C), they are:

  • IRA – tax deferred income
  • Roth-IRA – based upon time account is in effect, tax free withdrawal
  • The exclusion for gain on the sale of a principal residence – $250,000 Single taxpayer and $500,000 exemption for a married taxpayer based upon years of residency.
  • Trade or business expenses – what is deductible
  • Travel expenses – what qualifies as a business travel
  • Meals and entertainment – what qualifies as a meal and entertainment
  • Maximum deferral amount of government employees deferred compensation plans
  • Deduction for health insurance costs of self-employed taxpayers – allows self-employed taxpayers to deduct health insurance costs
  • Medical and dental expenses – limited expenses subject to deductible federal medical and dental expenses
  • Annuities – tax deferred income
  • Health savings accounts – allows the use of HSA
  • Employer provided health insurance coverage – not taxable to the employee
  • Amounts received by an employee under a health and accident plan – may or may not be taxable dependent upon whether the health and accident plan was purchased with pre or post tax funds
  • Contributions to qualified tuition programs – deductible limit for specific undergraduate college costs

The above topics are addressed by the Massachusetts Technical Information Releases: TIR 98-8, TIR 02-11, TIR 02-18, TIR 07-04, and TIR 09-21. You will find the Technical Information Releases have addressed many of these topics in prior years.

When preparing your 2018 tax return be aware of the fact that Massachusetts has decoupled from the Federal Government on January 1, 2005, thus you should review your tax return for the appropriate handling of income and costs when filing your Massachusetts tax return.

Thomas D. Terranova, Jr., CPA, PFS, CITP is a managing member of Terranova & Associates, LLC and a member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers and may be contacted at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC

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