Massachusetts Tax Changes for 2015

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1 Massachusetts Tax Changes for 2015 Below you will find brief descriptions of major tax law changes for 2015 pertaining to personal income tax in Massachusetts. Section 179 Expenses For both the corporate excise and the personal income tax, Massachusetts follows the current Code for purposes of I.R.C. 179, which provides an election to expense certain depreciable business assets in its initial year (qualifying property, called Section 179 property) rather than treat them as capital expenditures. To the extent a taxpayer is eligible to deduct trade or business expenses in Massachusetts, the taxpayer is allowed a I.R.C. 179 deduction in the same amount as allowed federally. Beginning in 2015, The Sec 179 increased $500,000 expensing limit and $2 million phaseout threshold have been made permanent federally, for tax years beginning in 2016 those amounts will be indexed for inflation. Earned Income Tax Credit (EITC) For federal income tax purposes, the American Taxpayer Relief Act (P.L ) makes permanent or extends through 2017 enhancements to the earned income tax credit. The Massachusetts earned income tax credit equals 15% of the federal earned income tax credit received by the taxpayer for the taxable year. Therefore, Massachusetts allows 15% of the amount the taxpayer receives federally under I.R.C. sec. 32. Certified Housing Development Tax Credit Pursuant to the Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Sections 45-48, 60-62, 122 and 125, effective for tax years beginning on or after January 1, 2015, the annual cap on the amount of credit that may be awarded has been increased from $5 million to $10 million. The annual cap for the certified housing development tax credit is part of an over-all cap imposed on the Economic Development Incentive Program credit authorized pursuant to G.L. c. 62, 6(g); G.L. c. 63, 38N. The annual cap is reduced from $10 million back to $5 million for tax years beginning on or after January 1, Economic Development Incentive Program Credit (EDIPC) Pursuant to the Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Sections 41 and 55, effective for tax years beginning on or after January 1, 2015, the EDIP credit provisions have been expanded to include certified job creation projects. The amount of the credit awarded may be up to $1,000 per job created (up to $5,000 in a Gateway Community or within a city or town whose average seasonally adjusted unemployment rate, as reported by the executive office of labor and workforce development, is higher than the average seasonally adjusted unemployment rate of the commonwealth). The total award per project may not exceed $1,000,000. The credit for a certified job creation project is allowed only for the year subsequent to that in which the jobs are created. Employer Wellness Program Credit

2 Effective for tax years beginning on or after January 1, 2013, a Massachusetts business that employs 200 or fewer workers may qualify for a tax credit for up to 25% of the cost of implementing a certified wellness program for its employees. A taxpayer seeking to claim the credit must apply to the Department of Public Health (DPH) for certification of its wellness program. DPH will approve a dollar amount of credit for a qualifying taxpayer and issue a certificate to be provided in connection with filing a tax return in order to claim the credit. The amount of the credit that may be claimed by a taxpayer cannot exceed $10,000 in any tax year. The credit is set to expire on December 31, Farming and Fisheries Tax Credit The Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Section 50, creates a small farms and fisheries tax credit effective for tax years beginning on or after January 1, The new credit applies to personal income taxpayers who are primarily engaged in agriculture, farming or commercial fishing. The amount of the credit is 3% of the cost or other basis for federal income tax purposes of qualifying property acquired, constructed or erected during the tax year. Qualifying property is defined as tangible personal property and other tangible property including buildings and structural components thereof which are located in Massachusetts, used solely in farming, agriculture or fishing, and are depreciable with a useful life of at least 4 years. The Act allows the same credit to lessees, and there is a recapture provision. Gambling Loss Deduction For tax years beginning on or after January 1, 2015, G.L. c. 62, 3(B)(a)(18) allows a deduction from Part B income for gambling losses incurred at certain Massachusetts licensed (under General Laws chapter 23K) gaming establishments or racing meeting licensee or simulcasting licensee establishments but only to the extent of winnings from such Massachusetts establishments included in gross income for the calendar year. This deduction is claimed on Schedule Y. The new gambling loss deduction is the only deduction for gambling losses allowed a Massachusetts taxpayer. Massachusetts does not adopt the federal deduction under IRC 165(d) for gambling losses. Health Insurance, Massachusetts Interaction with New Federal Penalty Beginning January 1, 2014, the federal Affordable Care Act instituted a federal mandate on individuals to obtain health insurance. While both Massachusetts and federal health care reform include this individual responsibility requirement, there are differences associated with: the penalties imposed on those who are not exempt from the federal mandate and fail to comply with the mandate requirement; the standards defining what constitutes affordable coverage; and the standards defining the type of health insurance that satisfies the coverage requirement. To avoid any penalty stacking (i.e., aggregation of both the Massachusetts and federal penalties), where a taxpayer is subject to both the Massachusetts penalty and the federal shared responsibility payment, the taxpayer s Massachusetts penalty is reduced by the amount of the federal shared responsibility payment. Also, if the federal shared responsibility payment is greater than the amount that the taxpayer would owe as the Massachusetts penalty, the Massachusetts penalty is reduced to zero.

3 Health Insurance, Penalty for Failure to Purchase - Tax Year 2015 Pursuant to G.L. c. 111M, s. 2, the Massachusetts Health Care Reform Act requires most adults 18 and over with access to affordable health insurance to obtain it. In 2015, individuals must be enrolled in health insurance policies that meet minimum creditable coverage standards defined in regulations adopted by the Commonwealth Health Insurance Connector Authority (the Connector). Individuals who are deemed able to afford health insurance but fail to comply are subject to penalties for each month of non-compliance in the tax year (provided that there is no penalty in the case of a lapse in coverage of 63 consecutive days or less). The penalties, which will be imposed through the individual's personal income tax return, shall not exceed 50% of the minimum monthly insurance premium for which an individual would have qualified through the Connector. These penalties apply only to adults who are deemed able to afford health insurance. On an annual basis, the Connector establishes separate standards that determine whether individuals, married couples and families can afford health insurance, based on their incomes and affordable health insurance premiums. Those who are not deemed able to afford health insurance pursuant to these standards will not be penalized. Individuals also have the opportunity to file appeals with the Connector asserting that hardship prevented them from purchasing health insurance (and thus that they should not be subject to tax penalties). Health Savings Accounts Massachusetts adopts the federal deduction allowed to individuals for contributions to a Health Savings Account, subject to federal limitations which are adjusted annually for inflation. Health Savings Accounts (HSAs) are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. For calendar year 2015, the maximum annual aggregate contribution is equal to $3,350 for an individual plan or $6,650 for a family plan. The contribution limitations are increased for individuals age 55 or older (but not covered by Medicare) by the end of the calendar year. For calendar year 2015, the maximum annual aggregate contribution for an individual age 55 or older is equal to $4,350 for an individual plan or $7,650 for a family plan. Historic Rehabilitation Credit The Fiscal year 2015 Budget extends the Massachusetts Historic Rehabilitation Tax Credit, including the $50 million annual limit, for an additional five years from December 31, 2017 to December 31, The Act Promoting Economic Growth across the Commonwealth, (St. 2014, c. 287), Section 53 amends MGL, Chapter 62, Section 6J(b)(1)(i), which provides that a taxpayer who acquires a qualified historic structure is allowed to receive any tax credits for qualified rehabilitation expenditures previously awarded to the transferor of the qualified historic structure if certain criteria is met: (A) the rehabilitation was not placed in service by the transferor; (B) no credit has been claimed by anyone other than the acquiring taxpayer as verified by the Department of Revenue to the Historical Commission; (C) the taxpayer completes the rehabilitation and obtains certification from the Historical Commission; and, (D) the taxpayer complies with all other requirements under the Historic Rehabilitation Tax Credit statute and related regulations and rules. In the case of a multi-phase project, tax credits may be transferred for any phase that meets the criteria in subsections (A) through (D). This change is effective August 13, 2014.

4 Real Estate Tax Credit for Persons Age 65 and Older (Circuit Breaker) Certain taxpayers age 65 or older may be eligible to claim a refundable credit on their state income taxes for the real estate taxes or rent paid during the tax year on the residential property they own or rent in Massachusetts that is used as their principal residence. If the credit due the taxpayer exceeds the amount of the total income tax payable for the year by the taxpayer, the excess amount of the credit will be refunded to the taxpayer without interest. For tax year 2015, the maximum credit allowed for both renters and homeowners is $1,070. To be eligible for the credit for the 2015 tax year: the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2015 tax year; the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence; the taxpayer's "total income" cannot exceed $57,000 for a single filer who is not the head of a household, $71,000 for a head of household, or $85,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2015, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $693,000. Tax Rates M.G.L. Chapter 62, Section 4, establishes the personal income tax rates to be applied against different classes of Massachusetts taxable income. The tax rate on most classes of income is scheduled to decrease in years where the state achieves revenue growth benchmarks set forth by the formula in M.G.L. Chapter 62, Section 4(b). Accordingly, effective for tax years beginning on or after January 1, 2015, the 5.2% tax rate on most classes of taxable income is decreased to 5.15%. The tax rate on short-term gains from the sale or exchange of capital assets and on long-term gains from the sale or exchange of collectibles (after a 50% deduction) remains at 12%. Major Federal Tax Law Changes for 2015 That Do Not Pertain to Personal Income Tax in Massachusetts Below you will find brief descriptions of federal tax law changes for 2015 that do not pertain to personal income tax in Massachusetts. Each topic includes links to further detailed information. Transportation Fringe Benefits Based on IRS's Revenue Procedure/inflation adjustment formula, the Massachusetts exclusion amount for tax year 2015 is $250 per month for employer-provided parking and $130 per month for combined transit pass and commuter highway vehicle transportation benefits. Massachusetts adopts this federal exclusion under the Internal Revenue Code, as amended and in effect on January 1, Any federal tax law changes to these exclusions will not be automatically adopted. Massachusetts will continue to follow the Code of January 1, Massachusetts does, however, adopt

5 the IRS's Revenue Procedure/inflation adjustment formula used in determining annual exclusion amounts.

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