1.100 Deferrals of Gross Income

Deferrals of Gross Income

1.100

2,152.2

2,283.0

2,778.4

2,906.2

3,343.1

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1.101
Net Exemption of Contributions to Employee Stock Bonus Plans, Pensions, and Profit-Sharing Trusts

Employee contributions to employee stock bonus plans, pensions, and profit-sharing trusts are not subject to the Massachusetts personal income tax when made, if requirements under federal pension law are met. Distributions from such plans are generally taxable when received. Where employee contributions are not eligible for an exclusion, the distributions from those plans are excluded up to the amount of previously taxed contributions. Massachusetts conforms to these federal rules. This results in a deferral of tax on contributions to such plans, or an exclusion from tax on distributions, both of which constitute a state tax expenditure.

IRC §§ 401-415; M.G.L. c. 62, §§ 2(a)(2)(F); 2(a)(3)(C); and M.G.L. c. 62, § 2(a)(1)(I).

1,349.2

1.102
Treatment of Incentive Stock Options

Massachusetts adopts the federal tax treatment of incentive stock options as provided in the Internal Revenue Code (the "Code") as amended on January 1, 2024. Under the federal rules, and therefore for Massachusetts purposes as well, no tax consequences result when employees are granted or exercise options to purchase company stock. Employees are taxed only when they sell the stock acquired through the exercise. This results in a deferral of tax for both federal and Massachusetts tax purposes which constitutes a tax expenditure.

M.G.L. c. 62 § 1(c) and (d); G.L. c. 62, § 2(a); Code§§ 421, 422, and 424

6.8

1.103
Exemption of Earnings on Stock Bonus Plans, Pensions or Profit-Sharing Trusts

Employee stock bonus plans, employee pension plans and employee profit-sharing plans are exempt from the Massachusetts personal income tax.

M.G.L. c. 62, § 5(b)

1,683.5

1.104
Exemption of Earnings on IRAs and Keogh Plans

Massachusetts exempts the earnings of IRAs and Keogh plans from the personal income tax until the earnings are distributed. Distributions of earnings from Roth IRAs may be exempt if the account is held for at least 5 years and certain additional requirements are satisfied. This is consistent with the federal tax treatment of such plans.

M.G.L. c. 62, § 5(b)

270.3

1.106
Exemption for Capital Gains at Time of Gift

Ordinarily, for federal income tax purposes, capital gains are taxed at the time appreciated property is transferred to a new owner. However, the tax on capital gains on property transferred by gift is deferred until the new owner sells the property. If the new owner dies holding the gifted property, the tax is never imposed (see TE 1.022). Massachusetts generally follows the federal rules for purposes of determining taxable capital gains. This conformity results in a deferral and potential exclusion of tax on capital gains and therefore constitutes a state tax expenditure.

IRC §§ 1001, 1015

31.9

1.107
Teacher's Expense Deduction

Due to Massachusetts' conformity with IRC § 62, teachers may deduct from their 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). The deduction is limited to an inflation-adjusted amount. For the 2024 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.

IRC § 62(a)(2)(D)

1.4

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