Massachusetts doesn't conform to some federal tax changes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, according to the Department of Revenue.
The DOR’s June 4 working draft of a technical information release explains that some of the tax provisions in the CARES Act (P.L. 116-136) will have state tax implications.
"For purposes of determining Massachusetts gross income for personal income tax purposes, Massachusetts generally follows the provisions of the [IRC] as amended and in effect on January 1, 2005. In certain instances, however, Massachusetts specifically adopts provisions of the [IRC] as currently in effect. For Massachusetts corporate excise purposes, gross income means federal gross income as defined under the [IRC], with certain modifications, as amended and in effect for the taxable year," according to the draft guidance.
The draft states that the 2020 relief payments — which the draft calls "recovery rebates" — of $1,200 for individuals and $500 for a qualifying child, established under section 2201 of the CARES Act, are not includable in federal gross income and therefore are not subject to state personal income tax.
Regarding payments under the emergency expansion of unemployment benefits under section 2102 of the act, the guidance explains that those payments are included in federal and state gross income and are thus subject to state personal income tax.
Massachusetts conforms to IRC section 72, which exempts early coronavirus-related retirement withdrawals from an additional tax. However, the draft guidance notes that conforming will have no state tax effect because Massachusetts does not impose an early withdrawal penalty.
Massachusetts also conforms to the provision of the CARES Act that temporarily increases the threshold for loans from a qualified employer retirement plan from $50,000 to $100,000. “For Massachusetts purposes a loan from a qualified employer plan will be treated as a distribution to the extent it is so treated for federal purposes,” according to the draft guidance. The state will also delay outstanding loans due anytime between March 27 and December 31, 2020, for one year.
The state aligns with the temporary waiver of minimum distribution requirements and rules and associated penalties for retirement plans under the CARES Act, but the guidance notes that this will not have any practical state tax effect "because Massachusetts has no analog to the federal penalties at issue."
According to the draft guidance, the state doesn't adopt the addition of subsection 22 to IRC section 62(a), which allows non-itemizers a $300 above-the-line deduction for charitable contributions beginning December 31, 2019, because it generally follows section 62(a) as in effect on January 1, 2005.
The state will continue limiting deductions for charitable contributions to 50 percent of the taxpayer’s adjusted gross income and will not conform to the CARES Act’s temporary easing on the deduction limitation for 2020.
According to the guidance, Massachusetts doesn't exclude qualified education loan payments made between March 27 and January 1 by an employer from an employee’s state gross income, and disallows the deduction for interest paid on the loans. Massachusetts will also not be affected by the CARES Act’s suspension of the limitation on losses because it did not adopt the limitations enacted in the federal Tax Cuts and Jobs Act.
The state will continue to exclude from gross income reimbursements from a taxpayer’s health savings account and flexible spending account for some medical costs, but not from an Archer medical savings account, the draft states.
The guidance clarifies that any small business loans forgiven under the Paycheck Protection Program under section 1106 of the CARES Act will be included in gross income for a borrower subject to personal income tax. "Any amount forgiven for a corporate borrower under section 1106 of the Act would be excluded from Massachusetts gross income, and any deductions disallowed in accordance with IRS Notice 2020-32 would likewise be disallowed for Massachusetts tax purposes," according to the draft guidance.
According to the draft, Massachusetts doesn't conform to the CARES Act’s modification to the limitations on net operating losses because it doesn't allow NOL deductions for personal income tax purposes. It will also use the increased 50 percent of adjusted taxable income in calculating the IRC section 163(j) deduction limitation for tax years 2019 and 2020 as allowed by section 2306 of the CARES Act.
The state adopts the act’s assigned 15-year depreciable life of qualified improvement property for property placed in service after December 2017, the guidance says, but clarifies that the state is decoupled from the bonus depreciation rules under IRC section 168(k).
Massachusetts also conforms to the CARES Act provision temporarily easing the deduction limitation for charitable contributions by a corporate taxpayer in 2020, the draft says.