Source: https://www.mass.gov/directive/directive-86-16-payments-from-state-and-municipal-deferred-compensation-plans
Timestamp: 2018-12-17 14:00:58
Document Index: 757520638

Matched Legal Cases: ['§ 2', '§ 457', '§ 2', '§ 457', '§ 2', '§ 457']

Directive 86-16: Payments from State and Municipal Deferred Compensation Plans | Mass.gov
Directive Directive 86-16: Payments from State and Municipal Deferred Compensation Plans
FACTS: Taxpayer Baker was employed by the City of Metropolis. While employed, Baker participated in the Deferred Compensation Plan established and maintained by the City of Metropolis pursuant to chapter 44 of the General Laws. In each year, the city deferred a portion of Baker's compensation and invested it in accordance with the plan agreement. When Baker separated from service he began to receive periodic payments of the previously deferred compensation, and the income attributable to such amounts, pursuant to the provisions of the plan.
The Deferred Compensation Plan was established in accordance with section 457 of the Internal Revenue Code and, at all times relevant here, qualified under section 457.
ISSUE 1: When is the compensation deferred included in Baker's Massachusetts gross income?
ISSUE 2: Is the interest earned on the deferred compensation included in Baker's Part A or Part B income?
DISCUSSION: Massachusetts gross income is federal gross income with certain modifications. G.L. c. 62, § 2(a).
The Code provides that compensation deferred pursuant to a city plan that satisfies the requirements of section 457 is not included in the federal gross income of the participant in the year deferred. I.R.C. § 457(a). Consequently, amounts deferred pursuant to a deferred compensation plan that qualifies under section 457 of the Code are not included in Massachusetts gross income in the year deferred. G.L. c. 62, § 2(a).
Compensation deferred pursuant to a plan that qualifies under section 457, and income attributable to such amounts deferred, are included in federal gross income for the taxable year in which paid to the participant. I.R.C. § 457(a). Consequently, compensation deferred pursuant to a plan that qualifies under section 457, and the income attributable to such amounts deferred, are included in Massachusetts gross income for the taxable year in which paid or made available to the participant. The amounts should be included in a taxpayer's Part B income, taxed at 5%.
DIRECTIVE 1: The compensation deferred is included in Taxpayer Baker's Massachusetts gross income in the years in which he receives payments from the plan.
DIRECTIVE 2: Any interest earned on the deferred compensation is included in Baker's Part B income, taxed at 5%.
REFERENCE: G.L. c. 62, § 2(a); I.R.C. § 457.
DOR-D 86-16