30 January 2026 Proposed Massachusetts bill would delay conformity to certain federal tax changes made by the OBBBA
On January 15, 2026, Massachusetts Governor Maura Healey, filed for legislative consideration of a bill (HB 4975) that would phase-in conformity to certain "One Big Beautiful Bill Act" (OBBBA) provisions, automatically decouple from federal tax changes under certain conditions and extend the state's elective pass-through entity tax (PTET) to include the surtax on high-income earners. Massachusetts generally incorporates federal tax law changes (known as "rolling" conformity)1 for purposes of the state's corporate excise tax and has therefore automatically adopted many of the corporate tax changes made by the OBBBA. While recognizing the benefits to Massachusetts and its businesses of conforming to the OBBBA, HB 4975 proposes temporarily decoupling, in-part, from several provisions over a two-year period for the state to "plan and budget for the revenue impacts." HB 4975 would disallow the deduction under IRC Section 174A "for [tax] years beginning in 2025."2 The Governor's letter to Senate and House members recommends that taxpayers "will be able to utilize the [research and experimental] (R&E) change on their payments for tax year 2026. … ". The proposed bill also would disallow the deductions created by OBBBA Section 70302(f) "[applicable] for tax years beginning on or after January 1, 2025."3 OBBBA Section 70302(f)(1) allows small businesses to elect to apply IRC Section 174A retroactively to domestic R&E expenditures incurred in tax years beginning after December 31, 2021. OBBBA Section 70302(f)(2) allows all taxpayers to elect to accelerate unamortized domestic R&E expenditures incurred and capitalized in tax years beginning after December 31, 2021, and before January 1, 2025, over one or two years (the first year, or first and second years, beginning after December 31, 2024).
For tax years beginning in 2025 or 2026, HB 4975 would allow taxpayers to apply IRC Section 1400Z-2 as in effect for tax years beginning before January 1, 2026. The proposed bill also would define a "qualified opportunity zone" as "an area located entirely within the commonwealth that is designated as a qualified opportunity zone under [IRC Section 1400Z-2]." This change would apply to tax years beginning on or after January 1, 2026. The Governor's letter to Senate and House members recommends Massachusetts implement conformity to the four above mentioned OBBBA provisions in 2027. The proposed bill would automatically decouple from certain amendments to the IRC that otherwise would apply under chapter 62 (income tax) or chapter 63 (corporate excise tax) if such amendments affect the determination of Massachusetts gross income or deductions under chapter 62 or gross income or net income under chapter 63 Section 30 paragraphs 3 and 4, respectively. Specifically, Massachusetts would not automatically conform to future amendments that apply to (1) any tax year that begins in the calendar year in which the amendment is enacted, or (2) any tax year that precedes the calendar year in which the amendment is enacted. This proposed decoupling provision would not apply to an IRC amendment that the Commissioner of the Massachusetts Department of Revenue timely determines will have an estimated income and corporate excise tax revenue impact of less than $20 million for the fiscal year that begins during the calendar year in which the amendment is enacted or any fiscal year that precedes the calendar year in which the amendment is enacted. Under the existing PTET program, eligible pass-through entities (PTEs) (i.e., S corporations, partnerships, or limited liability companies treated as either) may annually elect to pay a 5% excise tax on their "qualified income taxable in Massachusetts" (which is the same as the regular commonwealth personal income tax rate). The proposed bill would extend the state's elective PTET to include the 4% surtax on high-income earners. The PTET is intended to enable Massachusetts taxpayers who are PTE owners to deduct, for federal income tax purposes, state and local taxes (SALT) that exceed the annual SALT deduction limitation. Applicable to tax years beginning on or after January 1, 2026, new chapter 63E would allow eligible PTEs to make an annual election to pay an excise tax on its qualified taxable income at a 4% rate. Qualified members of a PTE making this election would be allowed a refundable credit against the PTET. All members of the electing PTE would be bound by the election, which would be irrevocable for the year made. The PTET election would not apply to any tax year for which the federal limitation on the SALT deduction has expired or otherwise is not in effect. Unlike other states that have recently enacted legislation permanently decoupling from select provisions of the OBBBA, such as Delaware, the District of Columbia, Michigan and Pennsylvania, the Governor's proposal would only temporarily decouple from select provisions of the OBBBA, with a proposed conformity date by 2027. Massachusetts would also join other rolling conformity states, such as Maryland and Virginia, that would automatically decouple from future federal tax law changes that would have a significant impact on state revenue. The bill has been referred to the Joint Revenue Committee for consideration. While it is early in the legislative process, affected taxpayers should review these proposed changes and determine how they would impact their Massachusetts tax obligations.
Document ID: 2026-0326 | ||||||||
