| Date: | 02/02/1993 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax
ISSUE: Are Tier I and Tier II railroad employee retirement benefits subject to the Massachusetts personal income tax?
DIRECTIVE: Neither Tier I nor Tier II railroad employee retirement benefits are subject to the Massachusetts personal income tax.
DISCUSSION OF LAW:
The basic railroad retirement benefit available to retired railroad employees consists of two "tiers." Tier I benefits are equivalent to social security benefits and are similarly financed with an equal payroll tax paid by both employee and employer. [1] Tier II benefits are amounts in addition to the Tier I benefits and are financed through a payroll tax, the majority of which is paid by the employer. [2]
Massachusetts gross income is federal gross income with certain modifications. G.L. c. 62, § 2(a). Taxpayers whose gross income exceeds a federal limit must include a portion of their Tier I railroad retirement benefits in their federal gross income. I.R.C. § 86. However, Massachusetts allows a deduction from federal gross income in determining Massachusetts gross income for Tier I railroad retirement benefits that are included in federal gross income under I.R.C. § 86. G.L. c. 62, § 2(a)(2)(H) (under I.R.C. § 86, the term "social security benefits" includes Tier I railroad retirement benefits).
Starting in 1984, any benefit provided under the Railroad Retirement Act of 1974 (other than a Tier I railroad retirement benefit) became subject to federal income taxation under I.R.C. § 72(r). However, these Tier II railroad benefits are exempt from state taxation under federal law. 45 U.S.C. § 231m.
/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue
MA:HMP:jmw
February 2, 1993
DD 93-1