MASS/RI Tax Treatment of Certain Federal Cares Act Provisions

William Delaney, EA
Westwood, MA

For personal income taxpayers, Massachusetts has adopted the Internal Revenue Code in effect on January 1, 2005.  For corporation income tax taxpayers, Massachusetts has adopted the Internal Revenue Code as currently in effect.  As you might imagine, this could result in conflict as to how certain recently adopted federal legislation applies to Massachusetts income tax returns.  A few examples…

 

2020 Recovery Rebates to Individuals.  The $1,200/$2,400 rebates are NOT included in MA gross income.

 

Extended/expanded unemployment benefits.  Federal gross income includes unemployment compensation, whether regular, extended or otherwise described.  Likewise, they ARE included in MA gross income.

 

Tax-favored withdrawals from Retirement Plans.  The type of withdrawal which is included in federal gross income ratably over a three-year period, is included in MA gross income at the same time and in the same amount. 

 

PPP Loan Forgiveness.  To the extent that there is loan forgiveness under the CARES Act, the federal “rule” (as clarified under the recently enacted Covid-19 Relief Legislation) is that there is NO loan forgiveness income and any expenses paid from such funds are eligible for the appropriate income tax deduction without restrictions.

 

MA rule for individual taxpayers – the loan forgiveness is included in MA gross income (i.e. it is taxable); the federal deductions are allowed, without restriction.

 

MA rule for corporation taxpayers – the loan forgiveness follows the federal code and is NOT included in MA gross income (i.e. it is not taxable); the federal deductions are allowed, without restriction.

 

Corporation charitable contribution deduction limitation (the 10% rule).  The CARES Act temporarily (for calendar year 2020 only) suspends the 10% of taxable income limitation on the charitable contribution deduction by increasing it to 25%.

MA has adopted the same provision.

 

See MA TIR 20-9 (7/13/20) for more information.

 

Rhode island – conforms to the federal code and has automatically adopted the changes resulting from both the CARES Act and the Covid-19 Act.