Sandra O’Neill of Bowditch & Dewey, has made available for download her article, “Massachusetts Enacts Work Around to Federal $10,000 SALT Deduction Limitation,” published on JDSUPRA. The abstract begins as follows:
On July 16, 2021, Governor Baker enacted legislation that allows (a) individual, trust and estate taxpayers who are partners in partnerships (or limited liability companies taxed as partnerships) and (b) individual, trust and estate taxpayers who are shareholders in subchapter S corporations to avoid the $10,000 limitation on the federal income tax deduction for state and local income taxes (“SALT”) for income from such business entities. Investors in partnerships or S corporations that make the election described below will face a slight increase in Massachusetts income tax, however, on their associated business income.
The Massachusetts House and Senate included the above legislative change in their Fiscal Year 2022 budget (H. 4002) passed on July 9, 2021. Section 39 of the new law adds new Chapter 63D to the Massachusetts General Laws (“Taxation of Pass-Through Entities”) which allows S corporations and partnerships to elect to pay an excise tax on qualified income taxable in Massachusetts at a rate of 5% (the Massachusetts individual income tax rate). This excise tax adds to a partner’s/shareholder’s current Massachusetts income tax on income from partnerships and S corporations. However, the new law provides individual, trust and estate partners/ subchapter S shareholders with a refundable credit equal to 90% of the partner’s/shareholder’s share of the new excise tax.
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal