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Massachusetts Circuit Breaker Tax Credit

By Thomas Holmes, JD

No, you will not receive a tax credit for having circuit breakers in your home. The Massachusetts Circuit Breaker Tax Credit is an income tax credit for certain people age 65 or older who own or rent a principal residence located in Massachusetts.

What is the Threshold?

Circuit Breaker Tax CreditAs with most tax credits, there are certain income threshold amounts that, if exceeded, will disqualify the taxpayer from taking the credit. On the surface, it would appear that most elders would be eligible for the credit. The income thresholds are as follows:

  • Single taxpayer – $56,000 “total income”
  • Head of household – $70,000 “total income”
  • Married filing joint – $84,000 “total income”

But hold on! Before you start planning on how you will spend your tax credit, think again. “Total income” for the purposes of the Circuit Breaker Tax credit is not “adjusted gross income” or “taxable income.” To calculate “total income,” start with total 5.25% income from Massachusetts Form 1, line 10; subtract deductions (if any) reported on line 1 through 10 of Schedule Y  (do not subtract deductions reported on lines 11 through 16); add back to Income the following: Massachusetts bank interest exempted on line 5b, total Social Security Benefits, Pensions/Annuities/IRA/Keogh distributions not taxed by Massachusetts, and certain miscellaneous income, e.g. cash public assistance; subtract exemptions from lines 2a through 2d of Form 1. The result will be “total income” for the Massachusetts Circuit Breaker Tax credit.

An Example of the Massachusetts Circuit Breaker Tax Credit

John & Mary are both retired and are both 65 years old. John has income of $45,000 from a Massachusetts teacher’s pension. Mary has Social Security income of $30,000. Together they have investment income of $25,000 and net rental income of $5,000. They do not report any deductions on Schedule Y. Because the teacher’s pension and Social Security income are not taxable in Massachusetts, only $19,800 of their income will be subject to Massachusetts income taxes ($30,000 less exemptions). At first glance it might appear that they qualify for the Circuit Breaker Tax credit. However, employing the calculations of the preceding paragraph, their “total income” is $94,800 ($105,000 less exemptions). Therefore, John & Mary are not eligible for the Circuit Breaker Tax credit.

Even if their “total income” had been below $84,000, if they own their home, the assessed value of the home may not exceed $691,000 (down $9,000 from 2013) to remain eligible for the credit.

The Calculation

If eligible, having satisfied both threshold requirements, the credit available in 2014 is calculated as follows:

For homeowners, the credit is equal to the amount by which the taxpayer’s property tax payments for the current year, plus 50% of water and sewer charges, but excluding any abatement or exemption granted, exceeds 10% of “total income”. The maximum credit for 2014 is $1,050.

For renters, the credit is equal to the amount by which 25% of the rent actually paid during the taxable year exceeds 10% of “total income”. Again, the maximum credit is $1,050.

Want to know more?

To read more about the Massachusetts Circuit Breaker Tax Credit click over to the Guide for Personal Income Tax on Mass.gov. We also invite you to leave your questions below or post to our Facebook or Google+ page. You are also welcome to contact us.

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