Appendix A

Appendix A Recent Law Changes Affecting Tax Expenditures

Fiscal Year 2024 Tax Expenditure Budget – Appendix A: Recent Law Changes Affecting Tax Expenditures

The following tax expenditures have been revised or created due to recent law changes.

The Personal Income Tax:

Pursuant to the Fiscal Year 2023 (FY23) Budget, for tax years beginning on or after January 1, 2022, Massachusetts generally conforms to the Internal Revenue Code (“IRC”) in effect as of January 1, 2022 for personal income tax purposes. Prior to the FY23 Budget, the Massachusetts personal income tax generally conformed to the IRC in effect as of January 1, 2005. The updating of the IRC conformity date triggered changes in Massachusetts’ conformity with numerous federal tax expenditures, as reflected in this Appendix.

However, pursuant to M.G.L. c. 62, § 1(c), Massachusetts conforms to certain IRC provisions currently in effect, rather than as of a fixed date. Provisions of the IRC that Massachusetts will continue to apply on a current basis are those related to:

• Roth IRAs;

• IRAs;

• 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.

Any changes to those IRC sections are automatically adopted in Massachusetts, and any tax expenditure derived from those sections will reflect the impact of any such changes. DOR will continue to review the impact of tax law changes at the federal level and will update future Tax Expenditure Budgets as necessary.

Federal Tax Law Changes

The following is a list of Massachusetts tax expenditures that were affected by Massachusetts’ adoption of the IRC in effect on January 1, 2022. Note that although some of these expenditures affect unincorporated business entities, they are not included in the “Corporate and Other Business Excise” section, below, because they will only apply to business taxpayers subject to the personal income tax (e.g., members of pass-through entities). For more information on the updated IRC conformity date in Massachusetts, please see Working Draft TIR: 23-1, Tax Provisions in the Fiscal Year 2023 Budget, Including Massachusetts Personal Income Tax Code Update.

Exemption of Premiums on Group-Term Life Insurance – IRC § 79(f) (TE Item 1.002)

In 2012, Congress expanded this exemption, allowing employers to transfer excess defined benefit plan assets to group life insurance and allowing the cost of such transfers to be excluded from the gross income of the employee. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, these amounts will be excluded for Massachusetts personal income tax purposes. See IRC § 79(f) (as amended by P.L. 112-141 § 40242(d)).

Exemption of Interest on Life Insurance Policy and Annuity Cash Value Interest – IRC § 101(a)(3), (j) (TE Item 1.003)

Under the 2005 IRC, IRC § 101(a) generally excluded life insurance proceeds from federal gross income. The scope of the federal exclusion was narrowed by legislation enacted after 2005. First, starting in 2006, proceeds in excess of premiums (and other policyholder payments) from employer-owned life insurance contracts were made taxable unless certain exceptions apply. See P.L. 109-280, § 863(a), (c)(1) (adding IRC § 101(j)). Second, starting in 2017, the exclusion was further limited in certain cases where the insurance policy was sold or transferred. See P.L. 115-97, § 13522(a) (amending IRC § 101(a)(2) and adding IRC § 101(a)(3)).

Pursuant to the recent adoption of the IRC in effect on January 1, 2022, the Massachusetts personal income tax conforms to the exclusion for insurance proceeds to the same extent it is allowed for federal tax purposes.

Exemption of Workers Compensation Benefits – IRC §§ 101(h), 104(a)(6) (TE Item 1.010)

Beginning in 2015, certain federal and state death benefits paid on behalf of public safety officers who die due to injuries received in the line of duty were excluded from federal gross income. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, such benefits will be excluded for Massachusetts personal income tax purposes. See IRC §§ 101(h), 104(a)(6).

Exemption of scholarships and fellowships – IRC § 117(c)(2) (TE Item 1.015)

Beginning in 2015, amounts received from a comprehensive student work-learning service program were excluded from federal gross income. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, such benefits will be excluded for Massachusetts personal income tax purposes. See IRC § 117(c)(2) (as amended by P.L. 114-113 § 301(a)).

Exemption of Certain Prizes and Awards – IRC § 74(d) (TE Item 1.016)

Beginning in 2016, the value of any medal or prize awarded on account of competition in the Olympics or Paralympics was excluded from federal gross income. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, the value of such awards will be excluded for Massachusetts personal income tax purposes. See IRC § 74(d) (as amended by P.L. 114-239 §2(a)).

Exemption of Benefits and Allowances to Armed Forces Personnel – IRC § 134(b)(6) (TE Item 1.024)

In 2008 Congress amended the IRC to exclude from federal gross income bonus payments made by a state or subdivision to a soldier for the soldier’s service in a combat zone. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, such amounts will be excluded for Massachusetts personal income tax purposes. See IRC § 134(b)(6) (as amended by P.L. 110-245 § 112(a)).

Parking and Combined Commuter Highway Vehicle Transportation and Transit Pass (T-Pass) Fringe Benefit – IRC § 132(f) (TE Item 1.030)

IRC § 132(f) excludes from an employee’s gross income employer-provided parking, transit pass, and commuter highway vehicle transportation benefits, subject to monthly maximum exclusion amounts. However, the monthly maximum amount for these exclusions differed for Massachusetts and federal purposes because Congress increased the maximum amount after 2005, a change to which Massachusetts did not conform under prior law. Because Massachusetts now adopts the IRC in effect as of January 1, 2022, Massachusetts conforms to this increase and the monthly maximum for these exclusions will be the same for Massachusetts and federal purposes for tax years beginning on or after January 1, 2022. For the 2022 tax year, the monthly maximum exclusion for both Massachusetts and federal purposes is $280 for employer-provided parking and $280 for combined transit pass and commuter highway vehicle transportation benefits. For the 2023 tax year, as noted in TIR 22-15, the monthly maximum exclusion will be $300 for employer-provided parking and $300 for combined transit pass and commuter highway vehicle transportation benefits.

In addition, IRC § 132(f) also excludes from an employee’s gross income employer-provided, qualified bicycle commuting reimbursements, subject to monthly maximum exclusion amounts. See P.L. 110-343, § 211. IRC § 132(f)(8) suspends this exclusion for tax years 2018 through 2025. Congress added the exclusion for qualified bicycle commuting reimbursements after 2005 and Massachusetts did not conform to it before the recent change to chapter 62’s conformity date. As a result of this change, Massachusetts will exclude from employees’ Massachusetts gross income employer-provided, qualified bicycle commuting reimbursements for taxable years beginning on or after January 1, 2026.

Employer-Provided Adoption Assistance – IRC § 137(f) (TE Item 1.032)

Under the IRC in effect on January 1, 2005, to which Massachusetts previously conformed, the federal exclusion for employer-provided adoption expenses was set to expire in 2010. Therefore, under prior law, this expenditure was not available for Massachusetts tax purposes after 2010 even though Congress subsequently delayed IRC § 137’s expiration and then, in 2012, codified IRC § 137 permanently. See P.L. 112-240, § 101(a). However, in adopting the IRC in effect as of January 1, 2022, Massachusetts resumes the exclusion of these expenses from gross income. See IRC § 137(f) (as amended by P.L. 111-148 § 10909(a)(2), (b)(2)(j)).

Department of Defense Homeowners Assistance Plan – IRC § 132(a)(8), (n) (TE Item 1.035)

IRC § 132(n) excludes from federal gross income payments received under the United States Department of Defense Homeowners Assistance Plan for the compensation of 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. This exclusion was legislatively expanded after 2005 to apply to wounded members of the Armed Forces and their spouses.

Massachusetts conforms to IRC § 132(n), as noted in TIR 05-16. However, because the later expansion of this exclusion was enacted by Congress after 2005, Massachusetts did not previously conform to this later change. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts now conforms to the expansion of the exclusion provided by IRC § 132(n) for tax years beginning on or after January 1, 2022.

Discharge of Indebtedness for Health Care Professionals – IRC § 108(f)(4) (TE Item 1.039)

In 2010, Congress expanded this expenditure to exclude from federal gross income amounts received pursuant to a state student loan repayment or forgiveness program that was intended to provide for increased availability of health care services in underserved or health professional shortage areas. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, such amounts will be excluded for Massachusetts personal income tax purposes. See IRC § 108(f)(4) (as amended by P.L. 111-148 § 10908(a)).

Archer Medical Savings Accounts (MSA) – IRC § 220(d)(2)(A) (TE Items 1.040, 1.420)

In 2020, Congress expanded the definition of qualified medical expenses for the purposes of an Archer MSA. Specifically, amounts paid, or expenses incurred, for certain medicine or drugs without a medical prescription were classified as a qualified medical expense. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts adopts this broadened definition of qualified medical expenses for personal income tax purposes. See IRC § 220(d)(2)(A) (as amended by P.L. 116-136).

Exclusion of Qualified Small Business Stock Capital Gains (TE Item 1.042); Non-Qualified Small Business Stock Capital Gains Tax Rate (TE Item 1.501) – IRC § 1202; M.G.L. c. 62, § 4(c)

IRC § 1202 excludes from federal gross income all of the gain from the sale or exchange of qualified small business stock held for more than 5 years. See IRC § 1202(a)(4) (as amended by P.L. 111-240 § 2011(a), (b)). The exclusion applies to gain on qualified small business stock acquired on or after September 27, 2010. However, under the 2005 IRC, only 50% of the gain was excluded. In adopting the IRC in effect on January 1, 2022, Massachusetts conforms to the 100% exclusion with respect to sales or exchanges of qualified small business stock that occur on or after January 1, 2022.

In addition to the exclusion, Massachusetts taxes gain on the sale or exchange of certain small business stock at a reduced rate of 3%. M.G.L. c. 62, § 4(c). The reduced rate is no longer applicable to gain that is eligible for the 100% exclusion as such gain is not included in Massachusetts gross income. However, the reduced rate continues to apply to gain that is not eligible for the federal exclusion (e.g., gain on a sale or exchange of stock that would otherwise qualify for the exclusion but for the fact that it was issued by an S corporation), if all of the requirements for the reduced rate are met.

Treatment of Incentive Stock Options – IRC §§ 83(i), 421-424 (TE Item 1.102)

IRC § 421-424 provides rules for the exclusion of income from incentive stock options. In 2017, Congress added IRC § 83(i), which affects certain stock options. Among other things, IRC § 83(i) permits eligible employees to obtain qualified stock in exchange for the performance of services. Employees were further permitted to defer the recognition of income on the stock for up to 5 years in certain instances. Prior to the adoption of the IRC in effect on January 1, 2022, Massachusetts did not conform to IRC § 83(i), which was not a part of the 2005 IRC. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, taxpayers subject to the personal income tax will be able to defer this income for Massachusetts personal income tax purposes in the same manner as for federal purposes. See IRC §§ 83(i), 421-424 (as amended by P.L. 115-97 § 13603(c)(1)).

Personal Exemption for Students Age 19 or Over – M.G.L. c. 62, § 3B(b)(3) (TE Item 1.407)

A taxpayer may claim a $1,000 exemption for each individual who qualifies as a “dependent” as defined by reference to IRC § 152. See M.G.L. c. 62, § 3B(b)(3). IRC § 152 defines the term “dependent.” In 2008, Congress (i) narrowed the definition of a dependent for purposes of the federal income tax to exclude individuals who file joint returns, and (ii) permitted taxpayers who are not the parent of a child to claim the child as a dependent, provided that the taxpayer’s adjusted gross income is higher than that of the child’s parent. See IRC § 152(b)(2), (c)(4)(C). Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts will adopt these rules for personal income tax purposes.

Tuition Deduction (Over 25% of Income) – M.G.L. c. 62, § 3B(a)(11) (TE Item 1.414)

Pursuant to M.G.L. c. 62, § 3B(a)(11), a deduction from Massachusetts gross income is allowed for tuition payments made by a taxpayer to a two- or four-year college in which the taxpayer or a “dependent” of the taxpayer is enrolled. The deduction is generally equal to the amount by which the net tuition payments exceed 25% of the taxpayer’s Massachusetts adjusted gross income. See M.G.L. c. 62, § 3B(a)(11). The term “dependent” in the tuition deduction is defined by reference to IRC § 152. As a result, this expenditure will be affected by the changes described above in TE Item 1.407.

Deduction for Clean-Fuel Vehicles and Certain Refueling Property – IRC § 62(a)(14) (TE Item 1.421)

The IRC provisions that this expenditure is tied to were repealed after 2005. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts now conforms to the repeal and will no longer offer this deduction for personal income tax purposes. See IRC § 62(a)(14) (as amended by P.L. 113-295 § 221(a)(34)(C)).

Self-Employed Health Insurance Deduction – IRC § 162(l) (TE Item 1.424)

IRC § 162(l) allows self-employed individuals to deduct the cost of health insurance for themselves, a spouse, dependents and any children not yet age 27. Massachusetts conforms to IRC § 162(l) on a current basis. However, under prior law, Massachusetts conformed to the 2005 IRC definition of “dependent.” Pursuant to the recent adoption of the IRC in effect on January 1, 2022, this expenditure now includes the cost of health insurance for self-employed individuals, their spouses, their “dependents” as defined by the 2022 IRC – see TE Item 1.407 (above) for a discussion of changes to the IRC’s definition of “dependent” between 2005 and 2022 – and any children not yet age 27.

Student Loan Interest Deduction – IRC §§ 127(c)(1) and 221(e); M.G.L. c. 62, § 3B(a)(12) (TE Item 1.425)

The federal Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), P.L. 116-136, § 1102(a), and the Consolidated Appropriations Act of 2021 (“CAA 2021”), P.L. 116-260, excluded payments made by an employer of certain student loans owed by an employee from the employee’s gross income. See IRC § 127(c)(1). To the extent that the payments are excluded from the employee’s gross income, the employee is not allowed to deduct student loan interest that he or she might otherwise have been able to deduct pursuant to IRC § 221. The exclusion and corresponding denial of the student loan interest deduction expire for tax years beginning on or after January 1, 2026. In addition to following these changes for personal income tax purposes, Massachusetts also adopts the inflation adjustments affecting IRC § 221. See IRC § 221(f) (as amended by P.L. 116-136).

Further, M.G.L. c. 62, § 3B(a)(12) allows a deduction from Massachusetts gross income for interest payments on certain undergraduate student loans, including those interest payments made on behalf of a taxpayer’s dependent. This expenditure will be affected by the changes to the IRC definition of dependent described above in TE Item 1.407. A deduction from Massachusetts gross income may be taken under M.G.L. c. 62, § 3B(a)(12) or IRC § 221, but not both.

Moving expense deduction and exclusion from gross income of qualified moving expense reimbursement – IRC §§ 132(g) and 217 (TE Item 1.429)

IRC § 217 provides a deduction for moving expenses paid or incurred during the taxable year in connection with the commencement of work by a taxpayer as an employee, or as a self-employed individual at a new principal place of work. IRC § 132(g) provides an exclusion from federal gross income for any qualified moving expense reimbursement. However, both the exclusion and deduction are disallowed for tax years beginning on or before December 31, 2025, and reinstated for subsequent tax years. The disallowance does not apply to qualifying members of the Armed Forces. P.L. 115–97 §§ 11048, 11049.

Because the suspension of IRC §§ 217 and 132(g) went into effect after January 1, 2005, Massachusetts continued to allow the moving expense deduction and moving expense reimbursement exclusion to all taxpayers, as noted in TIR 18-14. However, pursuant to the recent adoption of the IRC in effect on January 1, 2022, for tax years beginning on or after January 1, 2022 through tax years beginning on or before December 31, 2025, Massachusetts will no longer allow most chapter 62 taxpayers to either (i) exclude qualified moving expense reimbursements from their Massachusetts gross income or (ii) deduct qualified moving expenses. During that period, the deduction and exclusion will be available only to qualifying members of the Armed Forces.

Credit for Eligible Dependents – M.G.L. c. 62, § 6(y) (TE Item 1.624)

M.G.L. c. 62, § 6(y) allows certain taxpayers to claim a credit for eligible dependents. In defining who qualifies as an eligible dependent, M.G.L. c. 62, § 6(y) relies on the IRC § 152 definition of “dependent.” As such, this expenditure will be affected by the changes to IRC § 152 described above in TE Item 1.407.

Dependent Care Expenses Credit – M.G.L. c. 62, § 6(x) (TE Item 1.625)

Massachusetts law converted this expenditure from a deduction to a credit, made available pursuant to M.G.L. c. 62, § 6(x). The credit adopts the rules in IRC § 21, which in turn rely on the IRC § 152 definition of “dependent.” Therefore, this expenditure will be affected by the changes to IRC § 152 described above in TE Item 1.407. See IRC § 152(b)(2), (c)(4)(C).

Educator’s Expense Deduction – IRC § 62(a)(2)(D) (New TE Item)

IRC § 62(a)(2)(D) allows an eligible educator to deduct from federal gross income unreimbursed, qualified expenses (e.g., expenses for books, supplies, and computer equipment used in the classroom; expenses incurred during qualified professional development courses).

Under the 2005 IRC the educator’s expense deduction was scheduled to expire on December 31, 2005. See TIRs 05-16 and 07-4. Consequently, the deduction has not been allowed for Massachusetts tax purposes subsequent to 2005. However, the federal deduction was made permanent after 2005. See P.L. 114-113, Title VI, Part 1, § 104. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, eligible educators may deduct qualified expenses under IRC § 62(a)(2)(D), as described above, for Massachusetts purposes for tax years beginning on or after January 1, 2022. The deduction is limited to an inflation-adjusted amount. See IRC § 62(d)(3). For the 2022 tax year, the deduction is limited to $300, and, if the educator is married and files a joint return with another eligible educator, the limit rises to $600 with not more than $300 deducted per spouse.

Deduction for Whistleblower Attorneys Fees – IRC § 62(a)(21) (New TE Item)

In 2006 and 2021, Congress expanded this expenditure to allow for the deduction of attorney’s fees in relation to certain whistleblower lawsuits. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts adopts this expansion for personal income tax purposes. See IRC § 62(a)(21) (as amended by P.L. 109-432 § 406(a)(3) and P.L. 115-123 § 41107(a)).

Exclusion from Gross Income of Discharged Qualified Principal Residence Indebtedness – IRC § 108(a)(1)(E) (New TE Item)

After 2005, Congress amended the IRC to exclude the discharge of indebtedness for a qualified principal residence (i.e., a mortgage) that is discharged before January 1, 2026, or which will be discharged subject to a written arrangement entered into before January 1, 2026. See IRC § 108(a)(1)(E) (as amended by P.L. 110-142 § 2; P.L. 116-260, Division EE, § 114). Pursuant to the recent adoption of the IRC in effect on January 1, 2022, such discharged indebtedness income will be excluded for Massachusetts personal income tax purposes for tax years beginning on or after January 1, 2022 to the same extent as for federal purposes. The maximum amount excludable from gross income as discharged qualified principal residence indebtedness is $750,000 ($375,000 if married filing separately). See IRC § 108(h)(2).

Exclusion of Benefits Provided to Volunteer Firefighters and Emergency Medical Responders – IRC § 139B (New TE Item)

For taxable years beginning on or after January 1, 2021, Congress excluded qualified state and local tax benefits and qualified payments provided to any member of a qualified volunteer emergency response organization in an amount up to $300 from gross income. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts will exclude the amounts from gross income for personal income tax purposes. See IRC § 139B (as amended by P.L. 116-260).

Exclusion of Indian Healthcare Benefits – IRC § 139D (New TE Item)

In 2010, Congress added IRC § 139D which provides, in general, that federal gross income does not include the value of “any qualified Indian health care benefit.” See P.L. 111-148, Title IX, Subtitle B, § 9021(a). Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts will also exclude from gross income the value of “any qualified Indian health care benefit,” as defined by IRC § 139D, for taxable years beginning or after January 1, 2022.

Exclusion of Indian General Welfare Benefits – IRC § 139E (New TE Item)

In 2014, Congress added IRC § 139E, which excludes from federal gross income the value of certain “Indian general welfare benefit(s)” if the requirements of IRC § 139E are satisfied. See P.L. 113-168, § 2(a). Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts will also exclude from gross income the value of qualifying “Indian general welfare benefit(s),” as defined by IRC § 139E, for taxable years beginning or after January 1, 2022.

Exclusion of Certain Amounts Received by Wrongfully Incarcerated Individual - IRC § 139F (New TE Item)

In 2015, Congress added IRC § 139F, which excludes from gross income amounts received as civil damages, restitution, or other monetary awards relating to the wrongful incarceration of an individual. See P.L. 114-113, Div Q, Title III, Subtitle A, § 304(a). Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts conforms to this exclusion for taxable years beginning or after January 1, 2022.

Limitation on Non-corporate Taxpayers’ Deduction of Excess Business Losses – IRC § 461(l)

For taxable years beginning on or after January 1, 2021 and ending before January 1, 2027, IRC § 461(l) prevents noncorporate taxpayers from deducting excess business losses. Excess business losses generally include losses in excess of gross business income plus $250,000 (adjusted for inflation). Disallowed excess business losses may be carried forward as net operating losses for federal income tax purposes. Pursuant to the recent adoption of the IRC in effect on January 1, 2022, Massachusetts now conforms to the limitations under IRC § 461(l) for tax years beginning on or after January 1, 2022. However, losses disallowed because of the limitation may not be carried forward for Massachusetts purposes because Massachusetts does not allow a chapter 62 tax deduction for net operating losses. See IRC § 146(l); see also, TIR 18-14, and TIR 20-9. The limitation on deductions for excess business losses will reduce expenditures for this deduction.

Other Federal Tax Law Changes

Modified Accelerated Depreciation on Rental Housing - IRC § 168(g)

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (“TCDTRA”) reduced the depreciation period for certain residential rental property from 40 years to 30 years under the alternative depreciation system (“ADS”) provided by IRC § 168(g). See P.L. 116-260, Division EE, § 202. This federal tax law change is elective and applies retroactively to taxable years beginning after December 31, 2017. Massachusetts adopts these changes for purposes of both the personal income tax and the corporate excise. See TIR 22-2 for more information.

Other Tax Law Changes

Circuit Breaker Tax Credit Increased – M.G.L. c. 62, § 6(k) (TE Item 1.609)

A credit is allowed to certain qualified owners and renters of residential property located in Massachusetts equal to the amount by which the real estate tax payment or 25% of the rent constituting real estate tax payment exceeds 10% of the taxpayer’s total income, not to exceed $1,200 (for tax year 2022). 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 cannot exceed $912,000. For tax year 2022, an eligible taxpayer’s total income cannot exceed $64,000 in the case of a single filer who is not a head of household filer, $80,000 for a head of household filer, and $96,000 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 22-12 for more information.

Income Exclusion for Forgiveness of Student Loans – IRC § 108(f)(5); M.G.L. 62, § 2(a)(2)(R) (Potential New TE Item)

The FY23 Budget added M.G.L. 62, § 2(a)(2)(R), which provides an exclusion from Massachusetts gross income for income attributable to most discharges of student loans where such income is otherwise not excluded from Massachusetts gross income. This exclusion is substantially identical to the federal exclusion provided by IRC § 108(f)(5), which Massachusetts follows as in effect for the taxable year. However, while the federal exclusion provided by IRC § 108(f)(5) only applies to discharges of certain student loans for taxable years beginning on or after January 1, 2021 and ending on or before December 31, 2025, the new Massachusetts exclusion does not have a sunset date. See TIR 23-1 for more information.

National Guard Employee Credit – M.G.L. c. 62, § 6(aa) (TE Item 1.627)

For tax years beginning on or after January 1, 2023, a business subject to tax under Chapter 62 that employs not more than 100 employees may be allowed a credit equal to $2,000 for each member of the Massachusetts national guard hired by the business after July 1, 2022. To be eligible for a credit: (i) the primary place of employment and the primary residence of the member of the Massachusetts national guard must be in Massachusetts; and (ii) not later than the day an individual begins work, a business shall have obtained the applicable certification from the office of the adjutant general that the individual is a member of the Massachusetts national guard. A business that claims this credit is eligible for a second credit of $2,000 in the subsequent taxable year with respect to such member of the Massachusetts national guard, subject to certification of continued employment during the subsequent taxable year. The total cumulative credits awarded for all taxpayers may not exceed $1,000,000 annually and shall be authorized on a first-come, first-served basis. The credit is nontransferable and nonrefundable. Any amount of the credit that exceeds the tax due for a taxable year may be carried forward to any of the three subsequent taxable years. In the case of a pass-through entity claiming the credit, the credit must be attributed on a pro rata basis to the owners, partners, or members of the pass-through entity. See M.G.L. c. 62, § 6(aa).

Wind Power Incentive Jobs Credit – M.G.L. c. 62, § 6(bb) (TE Item 1.626)

Wind Power Incentive Investment Credit – M.G.L. c. 62, § 6(cc) (TE Item 1.626)

For tax years beginning on or after January 1, 2023, and until tax years beginning on or after January 1, 2033, a business subject to tax under Chapter 62 may, to the extent authorized by the offshore wind tax incentive program established in M.G.L. c. 23J, § 8A(d), be allowed a refundable credit in an amount, as determined by the Massachusetts Clean Energy Technology Center, of up to 50 percent of its total capital investment in an offshore wind facility. The total amount of the credit awarded will be distributed in equal parts over five taxable years that correspond to the period in which the business is certified. Eligibility requirements vary depending on whether the business owns or leases the offshore wind facility, but, in general, the business must (i) be a certified offshore wind company; (ii) have a total capital investment in an offshore wind facility that equals not less than $35,000,000; and (iii) that offshore wind facility must employ not less than 200 new full-time employees by the fifth year of the business’ certification. A business claiming this credit may not also claim the Wind Power Incentive Jobs Credit, M.G.L. c. 62, § 6(bb), or the Economic Development Incentive Program Credit, M.G.L. c. 62, § 6(g), in the same taxable year. In the event a taxpayer’s certification as an offshore wind company is revoked, the recapture of credit may be required. In the case of a pass-through entity claiming the credit, the credit must be attributed on a pro rata basis to the owners, partners, or members of the pass-through entity. See M.G.L. c. 62, § 6(cc).

The Corporate and Other Business Excise:

Massachusetts generally follows the IRC as currently in effect for corporate excise purposes. However, Massachusetts has expressly decoupled from certain provisions of the IRC. The following is a summary of the federal and state tax law changes which affect business corporations subject to the corporate excise, as well as unincorporated business entities doing business in Massachusetts.

Federal Tax Law Changes

Depreciation of Certain Residential Rental Property over 30-year period – IRC § 168(g)

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 reduced the depreciation period for certain residential rental property from 40 years to 30 years under the alternative depreciation system (“ADS”) provided by IRC § 168(g). See P.L. 116-260, Division EE, § 202. This federal tax law change is elective and applies retroactively to taxable years beginning after December 31, 2017. Massachusetts adopts these changes for purposes of both the personal income tax and the corporate excise. See TIR 22-2 for more information.

Expansion of disallowance of deduction for certain compensation paid by publicly traded corporations (New TE Item)

The American Rescue Plan Act of 2021 (“ARPA”), P.L. 117-2, expanded the limitation on the ability of publicly traded corporations to deduct executive compensation. Prior law limited the deduction to $1,000,000 for the three highest paid corporate officers. ARPA amended IRC § 162(m) to apply the limitation to the next five highest compensated employees, in addition to the top three. The additional disallowance is set to take effect for tax years beginning after December 31, 2026. See TIR 22-2 for additional information.

Other Tax Law Changes

National Guard Employee Credit – M.G.L. c. 63, § 38KK (TE Item 2.628)

For tax years beginning on or after January 1, 2023, a corporation subject to tax under Chapter 63 that employs not more than 100 employees may be allowed a credit equal to $2,000 for each member of the Massachusetts national guard hired by the corporation after July 1, 2022. To be eligible for a credit: (i) the primary place of employment and the primary residence of the member of the Massachusetts national guard must be in Massachusetts; and (ii) not later than the day an individual begins work, the corporation shall have obtained the applicable certification from the office of the adjutant general that the individual is a member of the Massachusetts national guard. A corporation that claims this credit is eligible for a second credit of $2,000 in the subsequent taxable year with respect to such member of the Massachusetts national guard, subject to certification of continued employment during the subsequent taxable year. The total cumulative credits awarded for all taxpayers may not exceed $1,000,000 annually and shall be authorized on a first-come, first-served basis. The credit is nontransferable and nonrefundable. Any amount of the credit that exceeds the tax due for a taxable year may be carried forward to any of the three subsequent taxable years. For corporations subject to a minimum corporate excise, the credit cannot reduce the corporation’s excise liability below the minimum corporate excise amount. See M.G.L. c. 63, § 38KK (St.2022, c.154, § 8).

Wind Power Incentive Jobs Credit – M.G.L. c. 63, § 38LL (TE Item 2.627)

Wind Power Incentive Investment Credit – M.G.L. c. 63, § 38MM (TE Item 2.627)

For tax years beginning on or after January 1, 2023, and until tax years beginning on or after January 1, 2033, a corporation subject to tax under Chapter 63 may, to the extent authorized by the offshore wind tax incentive program established in M.G.L. c. 23J, § 8A(d), be allowed a refundable credit in an amount, as determined by the Massachusetts Clean Energy Technology Center, of up to 50 percent of its total capital investment in an offshore wind facility. The total amount of the credit awarded is distributed in equal parts over five taxable years that correspond to the period in which the business is certified. Eligibility requirements vary depending on whether the corporation owns or leases an offshore wind facility, but, in general, the corporation must (i) be a certified offshore wind company; (ii) have a total capital investment in an offshore wind facility that equals not less than $35,000,000; and (iii) that offshore wind facility must employ not less than 200 new full-time employees by the fifth year of the business’ certification. A corporation claiming this credit may not also claim the Wind Power Incentive Jobs Credit, G. L. c. 63, § 38LL, or the Economic Development Incentive Program Credit, M.G.L. c. 63, § 38N, in the same taxable year. In the event a taxpayer’s certification as an offshore wind company is revoked, the recapture of credit may be required. The credit is subject to the offshore wind tax incentive program’s annual cap of $35,000,000. See M.G.L. c. 63, § 38MM (St. 2022, c.179, § 45).