II. Provisions Only Affecting Individual Taxpayers

A. Deductions for Dependent Care Expenses and Certain Dependents Converted into Credits

1. Credit for Dependent Care Expenses

The FY22 Budget repeals G.L. c. 62, § 3.B(a)(7), which allowed certain c. 62 taxpayers to claim a deduction for dependent care expenses, and adds G.L. c. 62, § 6(x), which allows c. 62 taxpayers to claim a refundable, nontransferable credit for such expenses. [33] Where the credit exceeds the taxpayer’s tax liability, the excess will be treated as an overpayment and paid to the taxpayer without interest. [34]

The parameters of the credit are substantially the same as the former deduction. The credit is equal to “employment-related expenses” allowed for purposes of determining the credit provided under Internal Revenue Code (“IRC”) § 21. Under IRC § 21, employment-related expenses include certain expenses incurred to enable the taxpayer to be gainfully employed, including household expenses and expenses for the care of a qualified individual. [35] A qualifying individual is (1) a dependent of the taxpayer who is younger than 13 years old; or (2) a dependent of the taxpayer, including a spouse, who is physically or mentally incapable of taking care of himself or herself and principally lives with the taxpayer. [36]

The credit cannot exceed $240 if the taxpayer claims expenses for one qualifying individual, or $480 if the taxpayer claims expenses for two or more qualifying individuals. Married taxpayers must file a joint federal income tax return to claim the credit. For taxpayers that file a joint federal income tax return and who file as married filing separately in Massachusetts, either spouse may claim the credit for expenses he or she incurred, but the combined credit for both spouses cannot exceed $240 for one qualifying individual or $480 for two or more qualifying individuals. With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year. [37] A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit. A taxpayer claiming the credit may not also claim the dependent credit allowed under G.L. c. 62, § 6(y).

The deduction is repealed, and the credit may be claimed, for taxable years beginning on or after January 1, 2021. [38]

2. Credit for Eligible Dependents

The FY22 Budget repeals G.L. c. 62, § 3.B(a)(8), which allowed certain c. 62 taxpayers to claim a deduction for eligible dependents, and adds G.L. c. 62, § 6(y), which provides c. 62 taxpayers with a nontransferable, refundable credit for such dependents. [39] Where the credit exceeds the taxpayer’s tax liability, the excess will be treated as an overpayment and paid to the taxpayer without interest. [40]

The parameters of the credit are substantially the same as the former deduction. To claim the credit, a taxpayer must furnish over half of the cost of maintaining a household. The household must include a dependent that qualifies as a dependent under IRC § 152 and who is (1) under the age of 12; (2) age 65 or over; or (3) disabled. The credit is equal to $180 if the taxpayer claims one dependent, or $360 if the taxpayer claims two or more dependents. The credit cannot be claimed by married taxpayers that file separate Massachusetts personal income tax returns. With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year. [41] A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit. A taxpayer claiming this credit may not also claim the credit for dependent care expenses allowed under G.L. c. 62, § 6(x).

The deduction is repealed, and the credit may be claimed, for taxable years beginning on or after January 1, 2021. [42]

B. Tax Treatment of Federal COVID-Related Relief Programs

The Recovery Act allows [43] personal income taxpayers to deduct from their Massachusetts gross income for any taxable year beginning on or after January 1, 2021 the following income derived from certain federal COVID-related relief programs that is excluded from federal gross income: (i) the amount of any cancellation of debt income related to Paycheck Protection Program loans made under § 1102(a) of the federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), [44] that are forgiven as described in subsection (b) of § 1106 of the CARES Act; (ii) the amount of any advance received as an Economic Injury Disaster Loan pursuant to § 1110(e) of the CARES Act; (iii) the amount of any Small Business Administration payment described in § 1112(c) of the CARES Act; (iv) the amount of any funding received as an Economic Injury Disaster Loan pursuant to § 331 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; [45] (v) the amount of any Shuttered Venue Operator grant made under § 324 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; and (vi) the amount of any Restaurant Revitalization Grant received from the Small Business Administration under § 5003 of the federal American Rescue Plan Act of 2021. [46]

Corporate excise taxpayers determine their Massachusetts gross income based on their federal gross income as determined under the IRC as amended and in effect for the taxable year and as such, may exclude these amounts from their Massachusetts gross income. See TIR 22-XX.

C. Delay in Reinstatement of the Massachusetts Charitable Contribution Deduction

The Massachusetts personal income tax deduction authorized by G.L c. 62, § 3.B(a)(13) has been suspended since the 2002 tax year. [47] The deduction was scheduled to be reinstated for tax years beginning on or after January 1, 2021, but the Fiscal Year 2021 Budget delayed that reinstatement until tax years beginning on or after January 1, 2022. [48] The FY22 Budget further delays the reinstatement of the Massachusetts charitable deduction for an additional year. [49] Therefore, c. 62 taxpayers will now be able to claim the Massachusetts charitable deduction for taxable years beginning on or after January 1, 2023.

D. Deduction for Contributions to a Massachusetts 529 College Savings Plan or Prepaid Tuition Program Made Permanent

G.L. c. 62, § 3.B(a)(19) allows a deduction for contributions to a Massachusetts 529 college savings plan or a prepaid tuition program, up to $1,000 per individual or $2,000 per married couple filing jointly. Pursuant to “An Act Relative to Job Creation and Workforce Development,” St. 2016, c. 219, § 138, this deduction was available to c. 62 taxpayers for tax years beginning January 1, 2017 through January 1, 2021 . The deduction was scheduled to expire for subsequent taxable years. The FY22 Budget amends St. 2016, c. 219, § 138 to eliminate the expiration, making the deduction permanent. [50]

/s/ Geoffrey E. Snyder Geoffrey E. Snyder Commissioner of Revenue

GES:RHF:dbb March 18, 2022 TIR 22-5

[1] St. 2020, c. 358, signed into law on January 14, 2021.

[2] St. 2021, c. 24, signed into law on July 16, 2021.

[3] St. 2021, c. 102, signed into law (in part) December 13, 2021.

[4] FY22 Budget, § 39.

[5] FY22 Budget, § 146.

[6] The Recovery Act, § 34.

[7] Recovery Act, § 78.

[8] Economic Development Act, § 57.

[9] FY22 Budget, § 37.

[10] Economic Development Act, § 57.

[11] FY22 Budget, § 143.

[12] FY22 Budget, §§ 29, 37.

[13] Id.

[14] Id .

[15] Id .

[16] FY22 Budget, § 142.

[17] G.L. c. 62, § 6(l); G.L. c. 63, § 38X.

[18] See St. 2005, c. 158, § 9, as amended by St. 2007, c. 63, § 15.

[19] St. 2005, c. 158.

[20] FY22 Budget, § 68.

[21] FY22 Budget, §§ 25, 36, 147.

[22] G.L. c. 62, § 6(l)(3); G.L. c. 63, § 38X(c).

[23] Economic Development Act, §§ 58, 60, 104.

[24] Economic Development Act, §§ 59, 61, 112.

[25] G.L. c. 62, § 6J(i) and G.L. c. 63, § 38R(i).

[26] FY22 Budget, §§ 31, 35.

[27] FY22 Budget, §§ 23, 32, 145.

[28] G.L. c. 62, § 6½; G.L. c. 63, § 31L.

[29] G.L. c. 62, § 6½(c); G.L. c. 63, § 31L(c)

[30] FY22 Budget, §§ 30, 33, 145.

[31] G.L. c. 63, § 38P(d).

[32] FY22 Budget, §§ 34, 145.

[33] FY22 Budget, §§ 24, 29.

[34] Recovery Act, § 31.

[35] IRC § 21(b)(2).

[36] IRC § 21(b)(1).

[37] Recovery Act, § 30.

[38] FY22 Budget, § 141.

[39] FY22 Budget, § § 24, 29.

[40] Recovery Act, § 33.

[41] Recovery Act, § 32.

[42] FY22 Budget, § 141.

[43] Recovery Act, § 77.

[44] See Public Law No. 116-136, signed into law on March 27, 2020.

[45] See Title III of Division N of Public Law No. 116-260, signed into law on December 27, 2020.

[46] See Public Law No. 117-2, signed into law on March 11, 2021.

[47] St. 2002, c. 186, § 9.

[48] St. 2020, c. 227, § 76.

[49] FY22 Budget, § 99.

[50] FY22 Budget, § 70.