Important Massachusetts Income Tax Changes

William Delaney, EA
Westwood, MA

Debt Forgiveness Income – PPP Loans: For sole proprietors, federal PPP loan debt forgiveness was not taxable in MA for tax year 2020. However, due to careless drafting of state statute, this benefit did not extend beyond that one tax year. The MA legislature has now made it clear in recently enacted HB4269 under Section 78 that

“…for any taxable year beginning on or after January 1, 2021, any amount received…..and any portion of a loan subsequently forgiven, shall be deducted from federal gross income for the purposes of determining Massachusetts gross income…” 

This means that the state issue regarding bringing back into MA income on an S corporation K-1 any federal debt forgiveness and taxing it to corporation shareholders is off the table; likewise, taxing this income to sole proprietors is retroactively cancelled. A win, win for MA taxpayers.

State Deduction for Charitable Contributions: A number of years ago, legislation was enacted which allowed a deduction for charitable contributions (whether or not itemized on federal Schedule A) when certain state budget surplus targets were achieved. Last year (tax year 2021) the Governor proposed that this deduction (which the legislature had deferred for tax 2020) be allowed for tax 2021, but his proposal was not enacted. The legislature then proposed to delay it once again in the current budget bill.

According to a recent release from the Governor’s office announcing his signing of the budget bill… 

“Given the Commonwealth’s fiscal position, Governor Baker vetoed an outside section (of the state budget bill) which would have delayed the implementation of the charitable tax deduction. This deduction was approved by voters twenty years ago and slated to go into effect when the state finances allow, and the combination of strong state revenue and serious needs facing non-profits and charitable organizations necessitate this tax deduction going into place.

It appears, at least as of this writing, that the MA charitable deduction is in place for tax year 2022. Keep in mind that MA allowable deductions do not include non-cash donations (i.e. clothing, vehicles, goods in general).