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The CARES Act was signed into law on March 27, 2020 to provide relief for individuals and businesses negatively impacted by the coronavirus outbreak. The Act includes provisions for both individuals and businesses.

We’re going to help you understand the Massachusetts tax implications of the provisions.

Individual Income Tax

Will the stimulus payments add to my Massachusetts income and taxes owed?

No. Stimulus payments are not included in federal gross income, and therefore are not subject to federal or Massachusetts personal income tax.

Are my unemployment benefits taxable in Massachusetts?

Yes. All payments of unemployment compensation, including amounts authorized under the CARES Act, are includable in both federal and Massachusetts gross income and subject to Massachusetts personal income tax.

Does Massachusetts follow the new rules about loans from Qualified Employer Retirement Plans?

Loans to employees from qualified employer retirement plans are generally treated as distributions, with certain exceptions. One of the exceptions is that loans under a certain amount aren’t typically considered as distributions. The Act temporarily increased that threshold amount from $50,000 to $100,000. Massachusetts will follow the federal treatment of any loans.

Corporate and Business Tax

Are Paycheck Protection Program loans treated as income to the borrower when forgiven?

A borrower is eligible for loan forgiveness under the Paycheck Protection Program equal to the amount spent on payroll costs, and any of the following that began before February 15, 2020: interest payments on mortgage obligations, payments of rent on any current lease, and utility payments. Forgiven amounts for corporate borrowers are excluded from Massachusetts gross income. On the other hand, for Massachusetts personal income taxpayers, any amount forgiven is includable in gross income and subject to tax.

Costs and expenses paid using Paycheck Protection Program loan amounts that are ultimately forgiven are not eligible for any of the credits authorized under Massachusetts law.

The Act modifies the limitation on the business interest deduction. Does Massachusetts follow those modifications?

Yes. The Act increases the limitation of net interest expense applicable to certain taxpayers from 30% of a taxpayer’s adjusted taxable income to 50% for tax years 2019 and 2020. Additionally, the Act allows the taxpayer to use 2019 adjusted taxable income in calculating the limitation for tax year 2020. Massachusetts adopts these changes subject to rules described in TIR 19-17.

There are more provisions in the Act that we haven’t described here. Some may have implications for Massachusetts state tax. You’ll find detailed information on the provisions of the Act, and the state tax implications, in TIR 20-9.

Additional Resource

DUA Guidance on CARES Act

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