Code of Massachusetts Regulations
830 CMR - DEPARTMENT OF REVENUE
Title 830 CMR 63.00 - Taxation of corporations
Section 63.38JJ.1 - Disability Employment Tax Credit

Universal Citation: 830 CMR 63.00 MA Code of Regs 63.38JJ.1

Current through Register 1531, September 27, 2024

(1) Statement of Purpose, Outline of Topics.

(a) Statement of Purpose. 830 CMR 63.38J J.1 explains the general rules for calculating, and the tax ramifications of claiming, the Credit established by St. 2021, c. 24, §§ 29, 37, and 142 and codified at M.G.L. c. 62, § 6(z) and M.G.L. c. 63, § 38JJ. Regulations issued by EOHHS setting forth the application process by which a qualified employee with a disability is certified as such may be found at 101 CMR 28.00: Disability Employment Tax Credit.

(b) Outline of Topics. 830 CMR 63.38J J.1 is organized as follows:
(1) Statement of Purpose, Outline of Topics

(2) Definitions

(3) General Rule

(4) Prerequisites to Claiming the Credit

(5) Refundability of the Credit

(6) Application of Credit Balance to Next Year's Estimated Taxes

(7) Offset Debt Collection

(8) Excise Limitations on Use of Credit

(9) Special Rules Applicable to Pass-Through Entities

(10) Organizations Exempt From Taxation Under Code § 501

(11) Record Retention

The provisions of 830 CMR 63.38J J.1 apply to Credits claimed for tax years beginning on or after January 1, 2023.

(2) Definitions.

For purposes of 830 CMR 63.38J J.1, the following terms have the following meanings, unless the context requires otherwise:

Commissioner. The Commissioner of Revenue, or the Commissioner's duly authorized representative.

Credit. The disability employment tax credit allowed by M.G.L. c. 62, § 6(z) and M.G.L. c. 63, § 38JJ.

DETC Certification. A written certification, as defined in 101 CMR 28.03, issued by the MRC to an individual certifying that individual as having a condition that meets the definition of "disability" under the Americans with Disabilities Act, 42 U.S.C. 12102.

EOHHS. The Executive Office of Health and Human Services.

IRC. With respect to personal income taxation under M.G.L. c. 62, the federal Internal Revenue Code, as defined in M.G.L. c. 62, § 1(c). With respect to the corporate excise under M.G.L. c. 63, the federal Internal Revenue Code, as amended and in effect for the taxable year, as more fully defined in M.G.L. c. 63 § 1.

MRC. The Massachusetts Rehabilitation Commission.

Qualified Employee with a Disability. An employee with a disability that meets the definition of "disabled" under the Americans with Disabilities Act, 42 U.S.C. 12102 and is a "qualified employee with a disability," as defined in 101 CMR 28.03.

Employer. Any individual or organization that employs a qualified employee with a disability and is entitled to claim the Credit under M.G.L. c. 62, § 6(z) or M.G.L. c. 63, § 38JJ, as applicable.

(3) General Rule. Pursuant to M.G.L. c. 62, § 6(z) and M.G.L. c. 63, § 38JJ, a Credit is allowed against the tax imposed under M.G.L. c. 62 or the excise imposed under M.G.L. c. 63, as applicable, to an Employer that employs a qualified employee with a disability, as certified by the MRC. The Credit is equal to $5,000 or 30% of the wages paid to each qualified employee with a disability in the first taxable year of employment, whichever is less. In each subsequent taxable year of employment, the Credit is equal to $2,000 or 30% of the wages paid to each qualified employee with a disability, whichever is less. The Credit may be claimed for tax years beginning on or after January 1, 2023 for wages paid to a qualified employee beginning on or after January 1, 2023. The credit is refundable, and is not transferable.

(4) Prerequisites to Claiming the Credit.

(a) Requirements of the Employee. For an Employer to claim a credit with respect to an employee, the employee must:
1. be certified by the MRC a shaving a condition that meets the definition of "disability" under the Americans with Disabilities Act, 42 U.S.C. 12102;

2. be capable of working independently;

3. be physically or mentally impaired in a manner that constitutes or results in a substantial impediment to employment;

4. be hired by the Employer after July 1, 2021;

5. be primarily employed and maintain primary residency in Massachusetts, as defined under 101 CMR 28.03: Definitons and documented under 101 CMR 28.07: Verification of Primary Place of Residence for the DEC Credit; and

6. be employed by the Employer for at least a 12-consecutive-month period, beginning in the previous taxable year and continuing or ending in the taxable year for which the Credit is to be claimed (however, this prerequisite notwithstanding, in calculating the Credit allowed for any given taxable year, only wages paid in the taxable year in which the Credit is claimed may be considered).

(b) Receipt of DETC Certification. To be eligible for a Credit with respect to an employee, an Employer must receive the DETC certification for the employee not later than the date provided in 101 CMR 28.06(1): Receipt of DEC Certification.

(5) Refundability of the Credit.

The Credit Is Refundable. If the Credit exceeds the tax or excise otherwise owed by the Employer under M.G.L. c. 62 or M.G.L. c. 63, as applicable, the Credit is applied against the Employer's liability as reported on the Employer's tax return, as first reduced by any other available credits. Any balance of the Credit shall be refunded to the Employer without interest.

(6) Application of Credit Balance to Next Year's Estimated Taxes. If the Employer chooses not to have the Credit refunded, then the remaining Credit balance will be treated as an overpayment and may be carried forward to the Employer's next taxable year, as an estimated tax payment. Once this choice is made, the Credit cannot be later refunded or applied to any additional tax or excise owed by the Employer for the prior tax year, even if an amended return is filed.

(7) Offset Debt Collection. The provisions of M.G.L. chs. 62C and 62D, including without limitation the provisions allowing offsets of refunds for unpaid tax assessments, child support obligations, or other applicable obligations, apply to refunds and overpayments under 830 CMR 63.38J J.1(5) and (6).

(8) Excise Limitations on Use of Credit.

(a) Minimum Excise Limitation. The Credit may not be applied to reduce any minimum corporate excise imposed under M.G.L. c. 63.

(b) 50% Limitation Inapplicable. In determining the amount of the Credit allowable for a taxable year, the 50% limitation imposed by M.G.L. c. 63, § 32C does not apply.

(9) Special Rules Applicable to Pass-through Entities.

(a) Pass-through Entities Not Taxed at Entity Level. In the case of a pass-through entity that is not taxable at the entity level, such as a partnership, limited partnership, limited liability partnership, or limited liability corporation, the Credit otherwise allowable to such entity under M.G.L. c. 62, § 6(z) or M.G.L. c. 63, § 38JJ, as applicable, shall be passed through to the entity's partners, members, or other owners pro rata or pursuant to an executed agreement among such persons documenting an alternative method, without regard to such persons' sharing of other tax or economic attributes of the entity. The total aggregate amount of the Credit passed through by such entity and claimed by its partners, members or other owners in any taxable year, however, shall not exceed the Credit amount allowed, as discussed in 830 CMR 63.38J J.1(3).

(b) Pass-through Entities Taxed at Entity Level. A pass-through entity subject to tax at the entity level in any year, such as a subchapter S corporation or trust, may claim the Credit allowed under M.G.L. c. 62, § 6(z) or M.G.L. c. 63, § 38JJ, as applicable, for the taxable year. Alternatively, the Credit may be passed through to the entity's shareholders or other owners pro rata or pursuant to an executed agreement among the entity's owners documenting an alternative method, without regard to these owners' sharing of other tax or economic attributes of the entity. These alternatives are mutually exclusive; a pass-through entity cannot claim part of the Credit against its own excise and pass the rest through to its owners. Either the entity or the owners may claim the Credit, but not both. If passed through, the total aggregate amount of the Credit claimed by the entity's owners in any taxable year shall not exceed the Credit amount allowed, as discussed in 830 CMR 63.38J J.1(3).

(c) The Elective Pass-through Entity Excise. The Credit may not be used by Employers to reduce the pass-through entity excise they elect to pay under M.G.L. c. 63D.

(10) Employers Exempt from Taxation under IRC § 501. An Employer that is exempt from taxation under IRC § 501 that employs a qualified employee with a disability is eligible to claim a refund of the Credit by filing a Massachusetts corporate excise or income tax return, as applicable. In such cases, the Credit is first applied against the Employer's tax liability resulting from its unrelated business taxable income, as defined in IRC § 512, if any, as reported on the Employer's tax return, whether or not the Credit results from the unrelated business activity of the Employer that gave rise to such liability. The balance of the Credit, if any, shall be refunded to the Employer.

(11) Record Retention. Records sufficiently accurate and complete to substantiate the Credit claimed by an Employer must be maintained by the Employer as set forth in 830 CMR 62C.25.1.: Record Retention. Therefore, unless the Commissioner consents in writing to an earlier timeframe, the records must be maintained until the statute of limitations for making additional assessments for the period for which the return was due has expired. Generally, this is three years after the due date of the return or the date the return is actually filed, whichever occurs later.

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