Massachusetts Retirement Exemption

Massachusetts Retirement Exemption

The Massachusetts Retirement Exemption allows certain retirees to reduce their state income tax liability by excluding a portion of their retirement income from taxation. This exemption is designed to provide relief to seniors and individuals relying on retirement income, such as pensions, IRA distributions, and annuities.

Eligibility Criteria

• Must be a Massachusetts resident.
• Must be age 65 or older (or blind and age 62 or older).
• Must have qualifying retirement income, including:
• Pension income from another state or jurisdiction (before deductions).
• Taxable IRA/Keogh and Roth IRA distributions.
• Unemployment compensation and fees.
• Income from business, partnerships, S corporations, trusts, or rental properties.
• Interest, dividends, and capital gains (excluding interest from Massachusetts banks).

How to Claim the Exemption

To claim the exemption, you must complete the appropriate Massachusetts tax forms:

• Form 1 (Massachusetts Resident Income Tax Return) for residents.
• Form 1-NR/PY (Nonresident/Part-Year Resident Income Tax Return) for nonresidents or part-year residents.

On Form 1, you will use the Massachusetts AGI Worksheet (Line 27) to calculate your adjusted gross income. If your total exemptions exceed your 5.0% income after deductions, the excess can be applied to reduce other types of income, including interest, dividends, and long-term capital gains.

For nonresidents or part-year residents, prorate your exemptions based on the ratio of your Massachusetts income to your total income. This is done by multiplying the exemption amount by the ratio of Massachusetts income to total income (as shown in Form 1-NR/PY instructions).

Reporting Requirements

• Report taxable IRA/Keogh distributions and Roth IRA conversion distributions on Form 1, Schedule X, Line 2.
• Complete the worksheet on Form 1, Page 19, to determine taxable retirement income after subtracting qualified charitable IRA distributions.
• Include any pension income from another state or jurisdiction before deductions.

Tax Calculation for Long-Term Capital Gains

If you have long-term capital gains, you may apply excess exemptions to reduce the tax. Multiply the amount of long-term capital gains by 0.05 (or 0.0585 if choosing the optional higher rate) to calculate the tax due. This is detailed in Form 1, Line 22 instructions.

Filing Instructions

• If filing by mail, use the light blue mailing label provided or mail to: Massachusetts Department of Revenue, PO Box 7003, Boston, MA 02204-7003.
• If using tax software, ensure you use the correct PO box as specified in the form instructions.

Source:

Form 1 Instructions

Form 1-NR/PY Instructions

Form M-9325 Electronic Filing Information

Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions before filing.