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Tax Implications for Massachusetts Taxpayers Under the CARES Act

Some recent guidance for Massachusetts taxpayers comes in the form of a TIR from the Massachusetts Department of Revenue regarding tax implications for individuals.

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Some recent guidance for Massachusetts taxpayers comes in the form of a TIR from the Massachusetts Department of Revenue regarding tax implications for individuals.

New guidance and general information about provisions of the Federal Coronavirus Aid, Relief and Economic Security (CARES) Act are being issued at a fast pace from federal and state tax authorities. Some recent guidance for Massachusetts taxpayers comes in the form of a Technical Information Release (TIR) from the Massachusetts Department of Revenue regarding tax implications for individuals.

Released as a “working draft,” this TIR addresses the following:

2020 Recovery Rebates to Individuals: If you were issued a rebate under the CARES Act, it will not be included in your Massachusetts gross income for the 2020 tax year and not subject to state personal income tax. This is because the advance payment of a credit under the Act is not includable in federal gross income.

Small Business Loan Forgiveness: There is a disconnect in how Paycheck Protection Program (PPP) loans that are forgiven are treated for federal and Massachusetts purposes for individual income taxes. For federal purposes, any amount of cancelled indebtedness that typically would be includable in the gross income of the borrower is now excluded. In addition, no deduction is allowed for an expense that is otherwise deductible if both the payment of the expense results in forgiveness of a loan made under the PPP and the income associated with the forgiveness is excluded from gross income.

A borrower that is subject to Massachusetts personal income tax who has any amount of forgiveness under the CARES Act will have to include that amount in its gross income. Furthermore, there is no disallowance of deductions attributable to the payment of expenses resulting in the forgiveness of the loan.  

Expansion of Unemployment Benefits: Unemployment benefits – which have been extended under the CARES Act – will be considered part of gross income for federal and Massachusetts purposes and subject to Massachusetts personal income tax.

Loans from Qualified Employer Retirement Plans: The CARES Act modified the rules applicable to loans from qualified employer retirement plans. As it now stands, these loans should be treated as a distribution for tax purposes unless there is an exception. The most common exception is for loans made during the 180-day period beginning March 27, 2020, as long as it’s within the threshold of $100,000. Massachusetts generally conforms to the federal retirement provisions. Therefore, if a loan from a qualified employer plan is considered as a taxable/non-taxable distribution for federal purposes, it will be for Massachusetts as well.

Partial Above-the-Line Charitable Deduction: Under the CARES Act, individual taxpayers who do not itemize can deduct up to $300 of qualified charitable contributions for tax year 2020, but Massachusetts will not conform to this change. Instead, for tax years beginning on or after January 1, 2021, Massachusetts will separately allow a deduction for charitable contributions with no itemization requirement.

Changes to Health Savings Accounts: In general, reimbursements from Health Savings Accounts (HSA), Flexible Spending Accounts (FSA) and Archer medical savings accounts are excluded from gross income and contributions to these accounts may be deducted. The CARES Act expanded on allowable deductions to include any amounts paid or expenses incurred for medicine or drugs without a medical prescription. Massachusetts conforms to this only if an individual has an HSA or FSA. Additionally, high-deductible health plans with an HSA can cover telehealth and other remote care services, beginning on or before December 31, 2021. Massachusetts conforms to this deduction expansion.

So, there you have it…for now.

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

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