Exclusions from Gross Income
| TAX EXPENDITURE | FY2012 | FY2013 | FY2014 |
|---|---|---|---|
| Exclusions from Gross Income | 3,642.6 | 3,963.1 | 4,170.2 |
| item | description | amount |
|---|---|---|
| Exclusions from Gross Income | 4,170.2 | |
| 1.001 |
Exemption of Premiums on Accident and Accidental Death Insurance
1
Employer contributions for premiums on accident and accidental death insurance are not included in the income of the employee and are deductible by the employer. Origin: IRC S. 106 Estimate: $24.2 |
24.2 |
| 1.002 |
Exemption of Premiums on Group-Term Life Insurance
1
Employer payments of employee group-term life insurance premiums for coverage up to $50,000 per employee are not included in income by the employee and are deductible by the employer. Origin: IRC S. 79 Estimate: $12.1 |
12.1 |
| 1.003 |
Exemption of Interest on Life Insurance Policy and Annuity Cash Value
Interest, which is credited annually on the cash value of a life insurance policy or annuity contract, is not included in the income of the policyholder or annuitant. Only when a life insurance policy is surrendered before death or when annuity payments commence does the interest become subject to tax. (Interest on dividends left on deposit is taxable.) Origin: IRC S. 101 Estimate: $214.2 |
214.2 |
| 1.004 |
Exemption of Employer Contributions for Medical Insurance Premiums and Medical Care
1
Employer contributions for medical insurance premiums and reimbursements for medical care are not included in the income of the employee and are deductible by the employer. Origin: IRC S. 105 and 106 Estimate: $1044 |
1,044.2 |
| 1.005 |
Exemption of Annuity or Pension Payments to Fire and Police Personnel
Income from noncontributory annuities or pensions to certain retired fire and police personnel or their survivors are tax-exempt. Origin: M.G.L. c. 32 Estimate: N.A. |
N.A. |
| 1.006 |
Exemption of Distributions from Certain Contributory Pension and Annuity Plans
2
Certain pensions and annuity distributions are tax-exempt under Massachusetts law. They are payments from contributory plans of the U.S. government, Massachusetts and its subdivisions, and other states that do not tax such income from Massachusetts. Any benefits in excess of contributions not taxed by Massachusetts constitute this tax expenditure. Origin: M.G.L. c. 62, S. 2(a)(2)(E) Estimate: $316.7 |
316.7 |
| 1.007 |
Exemption of Railroad Retirement Benefits
Railroad retirement benefits are not taxed. (Massachusetts has not adopted Internal Revenue Code section 86, which taxes some of these benefits if a taxpayer's income is above a certain level.) Comment: No adjustment is made for any prior payments taxpayers may have made to fund this system since employee payments to this system are taxes rather than contributions. Origin: M.G.L. c. 62, S. 2(a)(2)(H) Estimate: $4.6 |
4.6 |
| 1.008 |
Exemption of Public Assistance Benefits
Public assistance or welfare benefits are not taxed. These include Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI) benefits, and the like. Origin: Rev. Rul. 71-425, 1971-2 C.B. 76 Estimate: $223.1 |
223.1 |
| 1.009 |
Exemption of Social Security Benefits
Social Security benefits paid to people age 65 or older and their dependents, to persons under 65 who are survivors of deceased workers, and to disabled workers and their dependents are not taxed. Massachusetts has not adopted Internal Revenue Code section 86, which taxes a portion of these payments where a taxpayer's income is above a certain level. Origin: M.G.L. c. 62, S. 2 (a)(2)(H) Estimate: $827.2 |
827.2 |
| 1.010 |
Exemption of Workers' Compensation Benefits
Workers' compensation benefits are not taxed. These are benefits paid to disabled employees or their survivors for employment-related injuries or diseases. Origin: IRC S. 104 (a)(1) Estimate: $6.7 |
6.7 |
| 1.011 |
Exemption for Dependent Care Expenses
1
Day care paid for or provided by an employer to an employee, the value of which does not exceed the employee's or employee's spouse's "earned" income, and does not exceed the amount of $5,000, is not included in the income of the employee and is deductible by the employer. Origin: IRC S. 129 Estimate: $8.7 |
8.7 |
| 1.012 |
Exemption of Certain Foster Care Payments
Qualified foster care payments are not includible in the income of a foster parent. Origin: IRC S. 131 Estimate: $3.1 |
3.1 |
| 1.013 |
Exemption of Payments Made to Coal Miners
Coal miners or their survivors may exclude from income payments for disability or death from black lung disease. Origin: IRC S. 104(a)(1) Estimate: Negligible |
Negligible |
| 1.014 |
Exemption of Rental Value of Parsonages
1
A minister may exclude from gross income a rental allowance or the rental value of a parsonage furnished to him or her. Origin: IRC S. 107 Estimate: $2.5 |
2.5 |
| 1.015 |
Exemption of Scholarships and Fellowships
Degree candidates can exclude scholarships and fellowship income if the amounts are not compensation for services or for the payment of room, board or travel expenses. Origin: IRC S. 117 Estimate: $20.7 |
20.7 |
| 1.016 |
Exemption of Certain Prizes and Awards
Prizes and awards are generally required to be included in income. The exemption of certain prizes and awards is generally limited to taxpayers who donate the proceeds to a charitable organization. Certain employee achievement awards are also excluded from gross income. Origin: IRC S. 74 Estimate: N.A. |
N.A. |
| 1.017 |
Exemption of Cost-Sharing Payments
Portions of government cost-sharing payments to assist in water and soil conservation projects are not includible in the recipient's income. Origin: IRC S. 126 Estimate: Negligible |
Negligible |
| 1.018 |
Exemption of Meals and Lodging Provided at Work
1
The value of meals and lodging furnished to the employee by the employer on the business premises for the employer's convenience is not included in the income of the employee. The employer's expenses are deductible. Origin: IRC S. 119 Estimate: $7.6 |
7.6 |
| 1.019 |
Treatment of Business-Related Entertainment Expenses
1
With certain limitations, a business may take a deduction of up to 50% of the cost of business-related entertainment expenses. Generally, the value of the entertainment is not taxed as income to the persons who benefit from the expenditures. The effect is to provide the hosts and their guests with a nontaxable fringe benefit. Origin: IRC S. 162 Estimate: N.A. |
N.A. |
| 1.020 |
Exemption of Income from the Sale, Lease, or Transfer of Certain Patents
Income from the sale, lease or other transfer of approved patents for energy conservation, and income from property subject to such patents, are excluded from gross income for a period of five years. Origin: M.G.L. c. 62, S. 2(a)(2)(G) Estimate: N.A. |
N.A. |
| 1.021 |
Exemption of Capital Gains on Home Sales
Taxpayers may exclude up to $250,000 of capital gain (or $500,000 if filing jointly) on the sale of a principle residence. This exclusion from gross income may be taken any number of times, provided the home was the filer's primary residence for an aggregate of at least two of the previous five years. Comment: This expenditure and 1.105 (Deferral of Capital Gains on Home Sales) were changed by the Taxpayer Relief Act of 1997; item 1.105 (based on IRC 1034, the rollover of capital gains on the sale of a home) was repealed. In effect, both 1.105 and 1.021 were replaced with a modified IRC 121. The new IRC 121, which is the basis for Massachusetts tax expenditure 1.021, removed the age requirement and the "one-time-only" limitation. Origin: IRC S. 121 Estimate: $288.2 |
288.2 |
| 1.022 |
Nontaxation of Capital Gains at Death
Ordinarily, capital gains are taxed at the time appreciated property is transferred. However, no tax is imposed on a capital gain when appreciated property is transferred at death. The appreciation that accrued during the lifetime of the transferor is never taxed as income. Comment: See also item 1.106 below. Origin: IRC S. 1001 and 1014 Estimate: $937.3 |
937.3 |
| 1.023 |
Exemption of Interest from Massachusetts Obligations
Interest earned on Massachusetts bonds is exempt. The exclusion applies to bonds of Massachusetts agencies and and local subdivisions (cities and towns) as well. Origin: M.G.L. c. 62, S. 2 (a)(1)(A) Estimate: $87.4 |
87.4 |
| 1.024 |
Exemption of Benefits and Allowances to Armed Forces Personnel
1
Under the January 1, 1998 Code, Massachusetts allowed the federal exclusion for certain military fringe benefits including combat zone compensation, veterans' and medical benefits, disability benefits, moving allowances and a death gratuity benefit of $3,000. As a result of recent legislation under which the Commonwealth incorporated into Massachusetts personal income tax law the Code as amended and in effect on January 1, 2005 (hereinafter referred to as the "Code Update"). This exclusion was extended to include dependent care assistance under a dependent care assistance program, travel benefits received under the Operation Hero Miles program and an increased death benefit gratuity of $12,000. Origin: IRC S. 112-113 Estimate: $25.9 |
25.9 |
| 1.025 |
Exemption of Veterans' Pensions, Disability Compensation and G.I. Benefits
These veterans' benefits are not taxed. Origin: 38 U.S.C. S. 5301 Estimate: $30.4 |
30.4 |
| 1.026 |
Exemption of Military Disability Pensions
Disability pensions paid to service personnel are fully excluded from gross income. The portion of a regular pension that is paid on the basis of disability may also be excluded. Origin: IRC S. 104(a)(4) Estimate: $0.5 |
0.5 |
| 1.027 |
Exemption of Compensation to Massachusetts-Based Nonresident Military Personnel
Compensation paid by the U.S. to nonresident uniformed military personnel on duty at bases within Massachusetts for services rendered while on active duty is defined as compensation from sources outside Massachusetts. It is therefore not taxed. Comment: This tax treatment follows U.S. statutory law. Origin: 50 U.S.C. App. 574; M.G.L. c. 62, S. 5A(c) Estimate: $9.5 |
9.5 |
| 1.028 |
Exemption for Taxpayers Killed in Military Action or by Terrorist Activity
Massachusetts residents who die in combat while in active military service, or who die as a result of terrorist or military action outside of the U.S. while serving as military or civilian employees of the U.S. are exempt from income taxation. Origin: M.G.L. c. 62, S. 25 Estimate: N.A. |
N.A. |
| 1.029 |
Exemption for Retirement Pay of the Uniformed Services
Effective January 1, 1997, income received from the United States government as retirement pay and survivorship benefits for a retired member of the Uniformed Services of the United States is exempt from the personal income tax. The Uniformed Services of the United States are: the Army, Navy, Air Force, Marine Corps, Coast Guard, and the Commissioned Corps of the Public Health Service and National Oceanic and Atmospheric Administration. Origin: M.G.L. c. 62, S. 2 Estimate: $24.9 |
24.9 |
| 1.030 |
Parking, T-Pass and Vanpool Fringe Benefits
A federal and Massachusetts exclusion is allowed for employer-provided parking, transit passes and vanpool benefits (i.e. "qualified transportation benefits"), subject to monthly maximums. Massachusetts adopts the federal exclusion without any differences in exclusion amounts or allowed benefits. Although the Tax Relief Act of 2010 temporarily increased this amount at the federal level, Massachusetts does not conform, and allows exclusion amounts for tax year 2013 of $245 per month for qualified parking, and $125 per month for combined commuter highway vehicle transportation and transit paases. For further discussion, see TIR 10-20. Origin: IRC S. 132(f) Estimate: $41.1 |
41.1 |
| 1.031 |
Health Savings Accounts
For federal income tax purposes, the earnings in a Health Savings Account (HSA) account accrue on a tax-free basis, and qualified distributions from a HSA are excluded from gross income. Prior to the most recent Code update, Massachusetts taxed earnings in a HSA and also taxed distributions to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code Update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, a HSA. Origin: IRC S. 223 Estimate: included in 1.422 |
included in 1.422 |
| 1.032 |
Employer-Provided Adoption Assistance
Massachusetts adopts the federal exclusion for employer-provided adoption expenses paid (or treated as paid under IRC sec. 137) on or after January 1, 2005. The federal government extended this credit temporarily for 2011. However, as Massachusetts follows the 2005 Code, and so the credits sunset after 2010. Origin: IRC S. 137 Estimate: $0.0 |
$0.0 |
| 1.033 |
Employer-Provided Educational Assistance
Massachusetts adopts the federal exclusion for qualified educational expenses reimbursed to an employee under an employer-provided education assistance program in effect as of the 2005 Code Update. Massachusetts adopts the federal exclusion for qualified educational expenses for undergraduate and graduate education expenses up to the federal annual maximum of $5,250 per calendar year. Origin: IRC S. 127 and 132 Estimate: $9.3 |
9.3 |
| 1.034 |
Qualified Retirement Planning Services
Massachusetts adopts the federal exclusion for the employee fringe benefit of retirement planning advice or information provided to an employee and spouse by an employer maintaining a qualified employer plan. Qualified employer plans include IRC sec. 401(a) plans, annuity plans, government plans, IRC sec. 403(b) annuity contracts, SEPs and SIMPLE accounts. This exclusion is due to expire for tax or plan years beginning after December 31, 2010. Origin: IRC S. 132(m) Estimate: N.A. |
N.A. |
| 1.035 |
Department of Defense Homeowners Assistance Plan
Massachusetts adopts the federal exclusion for the employee fringe benefit of payments received under the Homeowners Assistance Plan. Such payments are intended to compensate military personnel and certain civilian employees for a reduction in the fair market value of their homes resulting from military or Coast Guard base closure or realignment. Origin: IRC S. 132(m) Estimate: N.A. |
N.A. |
| 1.036 |
Survivor Annuities of Fallen Public Safety Officers
For both Massachusetts and federal tax purposes, an exclusion from income is allowed for amounts paid under a governmental plan as an annuity to the survivor of a public safety officer killed in the line of duty. However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. Massachusetts had allowed an exclusion for amounts received in tax years beginning after December 31, 1996, with respect to individuals dying after that date. As a result of the most recent Code update, Massachusetts adopts the federal exclusion as amended and in effect on January 1, 2005, that extends the exclusion for such annuities from, and including, individuals dying after December 31, 1996 to individuals dying on or before December 31, 1996. Origin: IRC S. 101(h) Estimate: N.A. |
N.A. |
| 1.037 |
Survivor Annuities of Fallen Astronauts
Massachusetts adopts the federal exclusion for death benefits paid by the U.S. government to the survivors of astronauts who die in the line of duty. The Massachusetts exclusion is effective for payments made on or after January 1, 2005. Origin: IRC S. 101(i) Estimate: N.A. |
N.A. |
| 1.038 |
Discharge of Indebtedness for Victims of Terrorism
Massachusetts adopts the federal exclusion for discharge of indebtedness due to the death of an individual resulting from the September 11, 2001, terrorist attacks or as the result of anthrax-related illness occurring on or after September 11, 2001, and before January 1, 2002. Origin: IRC S. 108 & P.L. 107-134 Estimate: N.A. |
N.A. |
| 1.039 |
Discharge of Indebtedness for Health Care Professionals
Massachusetts adopts the federal exclusion for National Health Service Corps Loan Program repayments made to health care professionals. Loan repayments received under similar state programs eligible for funds under the Public Health Service Act are also excluded from income. Origin: IRC S. 108(f)(4) Estimate: Negligible |
Negligible |
| 1.040 |
Archer Medical Savings Accounts
For federal income tax purposes, the earnings in an Archer Medical Savings Account (MSA) account accrue on a tax-free basis, and qualified distributions from an Archer MSA are excluded from gross income. Prior to the 2005 Code Update, Massachusetts taxed earnings in an Archer MSA for individuals who became active participants on or after January 1, 2001 and also taxed distributions for such individuals to the extent such amounts were not previously taxed by Massachusetts. As a result of the Code Update, Massachusetts adopts the federal exclusion for earnings in, and qualified distributions from, an Archer MSA for all federally qualified individuals. Origin: IRC S. 220 Estimate: included in 1.420 |
included in 1.420 |
Key:
| ORIGIN | |
| IRC | Federal Internal Revenue Code (26 U.S.C.) |
|---|---|
| U.S.C | United States Code |
| M.G.L. | Massachusetts General Laws |
| Rev. Rul.; C.B. | Revenue Ruling; Cumulative Bulletin of the U.S. Treasury |
| ESTIMATES | All estimates are in $ millions. |
Footnote(s):
1 1 This item and others citing this endnote cover employee fringe benefits. We accept as standard the following treatment of these benefits: the expense incurred by the employer in providing the benefit is properly deductible as a business expense and the benefit is taxed as compensation to the employee as if the employee had received taxable compensation and then used it to purchase the benefit. Of course, there are problems with this analysis. In some cases, the "benefit" is more a condition of employment than a true benefit. For example, a teacher required to have lunch in the school cafeteria may prefer to eat elsewhere even if the school lunch is free. On the other hand, in many cases the provision of tax-free employee benefits is clearly a substitution for taxable compensation.
2 2 This item and others citing this endnote cover contributory pension plans. The standard tax treatment of these plans is as follows: Component Standard Treatment Contributions: Made out of income that is currently taxed to employees. Investment Income: Taxed to the employee as "earned" income. Distributions from Pension Funds: Tax-free to the extent they are made out of dollars previously taxed to the employees as contributions or investment income. The non-standard treatment of contributions, investment income, or distributions as described in items 1.006, 1.101, 1.104, and 1.402, results in either nontaxation or deferrals of tax.
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