1.100
1.100 Deferrals of Gross Income
Tax Expenditure Name
Tax Expenditure Number
FY2023
FY2024
FY2025
FY2026
FY2027
Deferrals of Gross Income
1.100
2,185.8
2,398.3
2,660.5
2,879.7
3,069.1
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Tax Item
Description
Origin
FY2027
1.101
Net Exemption of Contributions to Employee Stock Bonus Plans, Pensions, and Profit-Sharing Trusts
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.
1,350.0
1.102
Treatment of Incentive Stock Options
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.
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
8.2
1.103
Exemption of Earnings on Stock Bonus Plans, Pensions or Profit-Sharing Trusts
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.
1,474.5
1.104
Exemption of Earnings on IRAs and Keogh Plans
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)
190.1
1.106
Exemption for Capital Gains at Time of Gift
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.
39.1
1.107
Teacher's Expense Deduction
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 2025 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.
1.2
1.108
Deferral of Federal Gain Invested in Qualified Opportunity Zones
Deferral of Federal Gain Invested in Qualified Opportunity Zones
The TCJA added Code Subchapter Z, §§ 1400Z-1 and 1400Z-2, effective December 22, 2017. With the recent Code updates for personal income, the first of which was to the Code effective as of January 1, 2022, and the subsequent update to the Code effective as of January 1, 2024, this is now a personal income tax expenditure.
Under Subchapter Z, Taxpayers may elect to defer gain from a sale or exchange of property to an unrelated party occurring on or before December 31, 2026, by reinvesting that gain within 180 days of the sale or exchange in a "qualified opportunity fund." The deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) December 31, 2026. In either case, the amount of gain includable is the excess of: the amount of gain excluded or the fair market value of the investment in the qualified opportunity fund, whichever is less, over the taxpayer's basis in the investment. If a qualified opportunity fund investment is held for at least five or seven years by the date of deferred gain inclusion, the taxpayer's basis in the investment is increased by 10% or 15%, respectively. Qualified opportunity fund investments held for at least 10 years can be sold tax-free.
Under Subchapter Z, Taxpayers may elect to defer gain from a sale or exchange of property to an unrelated party occurring on or before December 31, 2026, by reinvesting that gain within 180 days of the sale or exchange in a "qualified opportunity fund." The deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) December 31, 2026. In either case, the amount of gain includable is the excess of: the amount of gain excluded or the fair market value of the investment in the qualified opportunity fund, whichever is less, over the taxpayer's basis in the investment. If a qualified opportunity fund investment is held for at least five or seven years by the date of deferred gain inclusion, the taxpayer's basis in the investment is increased by 10% or 15%, respectively. Qualified opportunity fund investments held for at least 10 years can be sold tax-free.
5.8
1.109
Exemption of Earnings of ABLE Accounts
Exemption of Earnings of ABLE Accounts
For federal tax purposes, contributions made to ABLE accounts pursuant to Internal Revenue Code ("IRC" or "Code") § 529A grow tax-deferred and can be withdrawn tax-free if used for qualified disability expenses. Section 70115 of the OBBBA modifies the inflation adjustment formula for determining the annual limit for contributions to an ABLE account. It also makes permanent the increased contribution limit, which is limited to the lesser of the applicable federal poverty level for a one-person household in the prior year, or the beneficiary's compensation for the year. The OBBBA amendment to IRC § 529A is effective for taxable years beginning after December 31, 2025. Massachusetts conforms to IRC § 529A on a current Code basis, so Massachusetts will follow the inflation adjustment formula and the permanently increased contribution limit
P.L. 119-21, § 70115; IRC § 529A
0.3
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