Most income from your federal return transfers automatically to your Massachusetts return. However, Massachusetts doesn't always follow federal tax law. Because of these differences, you may need to provide additional information to make sure your Massachusetts taxable income is calculated correctly.
Program Entry
Massachusetts Return → Income Subject to Tax
Foreign Earned Compensation Not Reported on a W-2
Massachusetts residents are generally taxed on all income, regardless of where it was earned.
If you excluded foreign earned income on your federal return under IRC Section 911, that income may still be taxable in Massachusetts and must be added to your Massachusetts return.
Common examples include:
- Foreign wages excluded on the federal return
- Foreign self-employment income
- Compensation earned while living or working abroad
Exempt Pensions and Annuities
Certain pensions are exempt from Massachusetts income tax.
Examples of exempt pension income include:
- Contributory pensions from the U.S. Government
- Contributory pensions from the Commonwealth of Massachusetts and its political subdivisions
- Noncontributory military pensions
Taxable pension income is generally transferred automatically from the federal return. However, adjustments may be necessary if part or all of the pension qualifies for a Massachusetts exemption.
Massachusetts does not tax Social Security benefits.
Schedule B - Interest and Dividend Income
Interest and dividend income is usually transferred from your federal return.
You may need to provide additional information if you're required to file Massachusetts Schedule B, including situations involving:
- Dividend income
- Interest income other than interest from Massachusetts banks
- Certain capital gains and losses
- Other Massachusetts-specific adjustments
Schedule C - Business Income
Massachusetts requires a business address for each Schedule C business.
If a business address was not entered on the federal Schedule C, provide the business address in this section.
This applies to sole proprietors and self-employed taxpayers reporting business income or loss.
Schedule D - Capital Gains and Losses
Use this section to:
- Enter any Massachusetts capital loss carryovers from prior years
- Report differences between federal and Massachusetts capital gains and losses
- Report Massachusetts-specific basis adjustments
- Report other Massachusetts capital gain or loss adjustments
Massachusetts may treat certain capital transactions differently than the federal return.
Schedule E - Rental and Pass-Through Income
Use this section to report any differences between:
- Federal Schedule E income or loss, and
- Income or loss taxable for Massachusetts purposes
This can include differences related to:
- Rental properties
- Royalties
- Partnerships
- S corporations
- Trusts and estates
Massachusetts Lottery Winnings
Report taxable Massachusetts Lottery winnings in this section.
You may only deduct the cost of the winning ticket when calculating net lottery winnings.
Important:
- Massachusetts does not allow deductions for losing lottery tickets.
- Deducting more than the cost of the winning ticket may cause the return to reject.
Other Gambling Winnings
Report gambling winnings that were not received from the Massachusetts Lottery, including:
- Casino winnings
- Sports wagering winnings
- Raffle winnings
- Race winnings
- Beano winnings
- Non-Massachusetts lottery winnings
If gambling winnings were reported on Form 1099-MISC, enter the amount here. The software will move the income from Other Income and correctly report it as gambling winnings.
Gambling Losses
Massachusetts may allow certain gambling loss deductions, but the rules differ from federal law and apply only to specific qualifying Massachusetts gambling and sports wagering activities.
Other Income Potentially Taxable in Massachusetts
Massachusetts taxable income may also include:
- Wages and salaries
- Tips and bonuses
- Unemployment compensation
- Business income
- Rental income
- Partnership and S corporation income
- Taxable IRA, Keogh, and Roth IRA distributions
- Taxable scholarships and fellowships
- Certain digital asset income
- Gambling winnings
- Foreign earned compensation excluded federally
Massachusetts residents are generally taxed on all income unless a specific exemption applies.
Important Notes
- Massachusetts residents are generally taxed on all income regardless of where it is earned.
- Income transferred from the federal return may require adjustments when Massachusetts law differs from federal law.
- Additional schedules, worksheets, or supporting documentation may be required for certain income types.
- Review all income entries carefully to ensure Massachusetts taxable income is reported correctly.
- Differences between federal and Massachusetts treatment are common for foreign income, pensions, retirement distributions, capital gains, and certain business items.