Legal Definition of Blindness You are legally blind and qualify for the blindness exemption if your visual acuity with correction is 20/200 or less in the better eye, or if your peripheral field of vision has been contracted to a 10-degree radius or less, regardless of visual acuity. Line 4e: Other: Medical and Dental Expenses/Adoption Agency Fee You may claim an exemption for medical and dental expenses paid during 2003 only if you itemized these expenses on your U.S. Form 1040, Schedule A. If you are married filing a joint U.S. Form 1040, you must file a joint Massachusetts Form 1-NR/PY to claim this exemption. Enter in line 4e, item 1 the amount reported on your U.S. Form 1040, Schedule A, line 4. If you paid adoption fees to a licensed adoption agency during 2003, you are eligible for an exemption of the total amount of the fees paid during the year. Fees paid during 2003 to an agency licensed to place children for adoption on account of the adoption process of a minor child regardless of whether an adoption actually took place during 2003 should also be included for this exemption. Enter this amount in line 4e, item 2. Note: No deduction is allowed for any portion of expenses that are paid or reimbursed by an employer and excluded from gross income under IRC sec. 137. Enclose a statement showing the name and address of the licensed adoption agency and the agency fees. Add item 1 and item 2 and enter the total in line 4e. Line 4f: Total Exemptions Add lines 4a through 4e and enter the total in line 4f. This amount should also be entered on line 22a of Form 1-NR/PY. Lines 5 through 11 ? Income received by nonresidents is taxed only when it is from Massachusetts sources. Refer to the general instructions in this booklet for a definition of Massachusetts source income. The instructions for each of these lines will describe Massachusetts source income in more detail. For part-year residents, income received while a resident, whether from sources inside or outside of Massachusetts, is taxable. ? Your entries must agree with the appropriate amounts on your copies of Forms W-2 and 1099, and/or required schedules for lines 8 and 9. Nonresidents, if your actual Massachusetts income is not known, see the Nonresident Apportionment Worksheet in line 13 and accompanying instructions. Note: You cannot apportion Massachusetts wages as shown on Form W-2. 5.3% Income DOR and the IRS maintain an extensive exchange program, routinely sharing computer tapes and audit results. Discrepancies between income, deductions, and schedules reported federally and on this return, except those allowed under state law, will be identified and may result in a state audit or further investigation. Note: If filing as both a nonresident and part-year resident, you must complete Schedule R/NR, Resident/ Nonresident Worksheet, before proceeding. Line 5. Wages, Salaries, Tips and Other Employee Compensation Report in line 5 total state wages from Form(s) W-2. Enter the amount(s) stated as Massachusetts wages. Note: Part-year residents, income earned while a Massachusetts resident in another state is subject to taxation in Massachusetts. In most cases your total wages will be the same amount reported on your U.S. 1040 or 1040A, line 7; U.S. 1040EZ, line 1; U.S.1040NR, line 8; or U.S. 1040NR-EZ, line 3 unless: ? you or your spouse earned income from employment outside Massachusetts (nonresidents only); ? you were a Massachusetts legal resident working in a foreign country (part-year residents only); ? you were a legal resident of Massachusetts for only a part of 2003; or ? you were a state or local employee and made contributions to a Massachusetts state or local pension plan. Differences Between Wages for Massachusetts Tax Purposes and Those Reported on Your U.S. Return ? Nonresidents earning a portion of income from employment outside Massachusetts. If a portion of the wage income reported on your U.S. return was earned outside Massachusetts, the amount in line 5 should not include wages earned in another state or country. ? Massachusetts legal residents working in a foreign country while a Massachusetts resident. Income earned in a foreign country is subject to taxation in Massachusetts. If you excluded part or all of the compensation earned in a foreign country on your U.S. return (under sec. 911 of the U.S. IRC), you must include any such amount in line 5 for Massachusetts tax purposes. ? Part-year residents of Massachusetts. If you earned only a portion of the income you reported on your U.S. return while you were a Massachusetts legal resident, subtract from your U.S. wages the amount earned and received while you were legally domiciled in another state or country. ? State or local employees contributing to pension plans. If you are a Massachusetts state, city, town or county employee and contributed to your pension plan, enter in line 5 the Form W-2 state wage amount. This amount will be greater than the U.S. amount because your pension contributions are excluded from your income for U.S. tax purposes. Contributions up to $2,000 may still be deducted in line 15a or 15b for Massachusetts tax purposes. Line 6. Taxable Pensions and Annuities Nonresidents. Under Title 4 of the United States Code, section 114, payments to nonresidents from certain qualified pension plans are not subject to tax. Qualified plans include: a qualified trust under IRC sec. 401(a) exempt from taxation under IRC sec. 501(a); simplified IRC sec. 408(k) plans; IRC sec. 403(a) annuity plans; IRC sec. 403(b) annuity contracts; IRC sec. 7701(a) (37) individual retirement plans; eligible deferred compensation plans of state and local governments and tax exempt organizations as defined by IRC sec. 457; IRC sec. 414(d) government plans; a trust or trusts described in IRC sec. 501(c) (18); and any plan, program or arrangement described in IRC sec. 3121(v)(2)(C) if payments are made at least annually and spread over the actuarial life expectancy of the beneficiaries, or if payments are spread over at least a ten-year period. Such income is also protected from state taxation if the plans are trusts under IRC sec. 401(a), but exceed limits laid down in IRC secs. 401(k), 401(m), 402(g), 403(b), 408(k) or 415 or any other limitation on contributions or benefits which may apply in the Code. Retirement or retainer pay of a member or former member of a uniformed service computed under 10 U.S.C. chapter 71 (military pensions) received by a nonresident is also exempt. Any income from pensions related to a Massachusetts trade, business or employment that is not derived from one of the qualified pension plans listed above is taxable. Enter in line 6 the portion of those pensions reported on your U.S. Form 1040, line 16a or U.S. Form 1040A, line 12a, that are taxable to Massachusetts nonresidents. Part-year residents. Income from most private pensions or annuity plans is taxable in Massachusetts. You must report the taxable pension income you received while a resident of Massachusetts. Certain government pensions, however, are exempt under Massachusetts law. In general, exempt pensions include contributory pensions from the U.S. government or the Commonwealth of Massachusetts and its political subdivisions, and noncontributory military pensions. The fol- 10 Line by Line Instructions lowing section describes some specific pensions which are exempt. If your pension is not exempt, you should generally enter in line 6 the taxable amount reported on your U.S. Form 1040, line 16b or U.S. Form 1040A, line 12b. In some cases, however, Massachusetts law requires an adjustment to the federal amount. Distributions from annuity, stock bonus, pension, profit-sharing or deferred payment plans or contracts described in secs. 403(b) and 404 of the U.S. IRC must be adjusted to account for your contributions that have been previously taxed. Subtract from such income (as reported on your U.S. Form 1040, line 16a or U.S. Form 1040A, line 12a) the amount of your contributions which were previously taxed by Massachusetts until the total of your taxed contributions is received. If your pension falls into this category, enter the adjusted amount in line 6 and explain briefly (in an enclosed statement) why this amount is different than the amount reported on your U.S. return. If you are receiving distributions from an IRA or Keogh plan, do not report the income here; instead, please refer to the instructions for Schedule X, line 2. What pensions are exempt? ? Pension income received from a contributory annuity, pension, endowment or retirement fund of the U.S. government or the Commonwealth of Massachusetts and its political subdivisions. ? Pensions from other states or its political subdivisions which do not tax such income from Massachusetts or its political subdivisions may be eligible to be deducted from Massachusetts taxable income. This pension income, however, should be reported in line 6. Refer to Schedule Y, line 6 instructions to determine eligibility for this deduction. ? Noncontributory pension income or survivorship benefits received from the U.S. uniformed services (Army, Navy, Marine Corps, Air Force, Coast Guard, commissioned corps of the Public Health Service and National Oceanic and Atmospheric Administration) is exempt from taxation in Massachusetts. ? Massachusetts state court judges who were appointed on or after January 2, 1975 are participants in the Massachusetts contributory retirement system and their pensions are nontaxable. State court judges who were appointed prior to January 2, 1975 receive taxable noncontributory pensions. If you retired under Chapter 32, Sections 56 through 60 of Massachusetts General Laws and are a veteran who began Massachusetts state service prior to July 1, 1939, all or part of your pension income may be subject to tax. If you elected to receive your proceeds from contributions in one lump-sum distribution, your original contributions to the retirement system are not taxable. Noncontributory pension income received after a lump-sum distribution is fully taxable and should be reported in line 6. How do I report lump-sum distributions? If you were an employee of the U. S., Massachusetts or one of its political subdivisions and left public employment prior to retirement, you are not required to report as income the lump-sum distribution of your previous pension contributions. Lump-sum distributions of qualified employee benefit plans in excess of the employee?s contributions which were previously subject to Massachusetts tax (or not previously excluded from Massachusetts tax) must be reported in line 6. Generally, qualified rollovers are not taxable in Massachusetts to the extent they are not taxable on your U.S. return. Lump-sum distributions related to IRA/Keogh distributions should be reported on Schedule X, line 2. Rollover from a Traditional IRA to a Roth IRA (Part-Year Residents Only). Taxpayers with $100,000 or less in federal adjusted gross income are allowed to make partial or complete rollovers from existing IRAs to Roth IRAs. Any taxable portion of these rollovers included in federal gross income received while a resident of Massachusetts is also included in Massachusetts gross income, except for amounts previously subject to Massachusetts personal income tax. See Schedule X, line 2 instructions for further details. Note: Massachusetts does not tax Social Security income, therefore, you should not report such income on Massachusetts Form 1-NR/PY. Line 7. Interest from Massachusetts Banks Nonresidents. Interest income is only taxable if it is related to a Massachusetts trade, business, profession, partnership or S corporation, or to the ownership of real estate or tangible personal property located in Massachusetts. Part-year residents. While a resident of Massachusetts, interest received from any savings banks, cooperative banks, national banks, trust companies, savings and loan associations or credit unions located in Massachusetts is taxable. Nonresidents/part-year residents, report in line 7a such interest taxable by Massachusetts. To report interest taxable to a nonresident/part-year resident from banks located in Massachusetts, enter in line 7a all amounts of interest received or credited to these deposit accounts (term and time deposits, including certificates of deposit, savings accounts, savings shares, and NOW accounts). Combine all accounts at the same bank. Enclose a statement listing names of all savings banks, cooperative banks, national banks, trust companies, savings and loan associations or credit unions in which you have deposit accounts. In line 7b, enter the exemption amount ($200 if married filing a joint return; otherwise enter $100) and subtract this amount from line 7a. Enter the result in line 7, but not less than ?0.? Note: Do not subtract interest forfeited or penalties charged to you for early savings withdrawal. You may be allowed to deduct these amounts on Schedule Y, line 2. All other interest, unless exempt, should be entered on Massachusetts Schedule B. The return on an IRA/Keogh is not taxable until distributed. Lines 8, 9 and 12. If showing a loss in lines 8, 9 or 12, be sure to mark over the ?X? in the box to the left. Do not use parentheses or negative signs to indicate losses. Line 8. Business/Profession or Farm Income or Loss Nonresidents engaged in a business or profession in Massachusetts must complete a Massachusetts Schedule C, Profit or Loss from a Business or Profession, and enter the amount of income or loss in line 8. Part-year residents must report the income or loss from a business or profession received while a resident of Massachusetts, whether derived from sources inside or outside of Massachusetts. Enter the amount of such income or loss that would be reported on Massachusetts Schedule C, line 31. You must enclose Massachusetts Schedule C with this return. Also, enclose a copy of your U.S. Schedule C or Schedule C-EZ if substituting U.S. Schedule C or C-EZ for Massachusetts Schedule C. Nonresidents, if your business or profession derived income from both inside and outside Massachusetts, see the Nonresident Apportionment Worksheet instructions in line 13. Note: You may substitute U.S. Schedule C or C-EZ for Massachusetts Schedule C if there are no differences between the amounts reported on U.S. Schedule C or C-EZ and amounts that would be reported on Massachusetts Schedule C. Be sure to write ?No Massachusetts Differences? on the top of the U.S. Schedule C or C-EZ. If you operate a farm as an individual or cooperative, enter the amount of income or loss from operating a farm from U.S. Schedule F, Profit or Loss from Farming, line 36. Enclose a copy of U.S. Schedule F. 11 Line by Line Instructions Line 9. Rental, Royalty, REMIC, Partnership, S Corporation, Trust Income or Loss Nonresidents. Report the amount of Massachusetts source income or loss from the items listed above. Part-year residents. Report the amount of income or loss from the items listed, received while a resident of Massachusetts, whether derived from sources inside or outside of Massachusetts. Enter in line 9 the total of: Massachusetts Schedule E, Part I, line 5; Part II, line 8; and Part III, line 11. Remember to subtract losses when calculating the total. You must enclose Massachusetts Schedule E and a copy of U.S. Schedule E. Explain on an enclosed sheet any differences in amounts entered on the Massachusetts and U.S. schedules. See Massachusetts Schedule E instructions for an explanation of possible differences. Line 10a. Unemployment Compensation Nonresidents. Enter the portion of your unemployment compensation reported on U.S. Form 1040, line 19; U.S. Form 1040A, line 13; U.S. Form 1040EZ, line 3; U.S. Form 1040NR, line 20; or U.S. Telefile Tax Record, item D, related to previous Massachusetts employment. Only unemployment compensation related to previous Massachusetts employment is taxable to nonresidents. If you elected voluntary withholding of Massachusetts state income taxes on your unemployment compensation, be sure to include the amount of Massachusetts state income tax withheld as reported on Form 1099-G on Form 1-NR/PY, line 40 and attach with a single staple, where indicated on the return, Form 1099-G. Part-year residents. Enter in line 10a the amount of unemployment compensation reported on U.S. Form 1040, line 19; U.S. Form 1040A, line 13; U.S. Form 1040EZ, line 3; U.S. Form 1040NR, line 20; or U.S. Telefile Tax Record, item D, received while you were a resident of Massachusetts, whether related to employment inside or outside of Massachusetts. If you elected voluntary withholding of Massachusetts state income taxes on your unemployment compensation, be sure to include the amount of Massachusetts state income tax withheld as reported on Form 1099-G on Form 1-NR/PY, line 40 and attach with a single staple, where indicated on the return, Form 1099-G. Note: DOR routinely matches the amounts in line 10a with files from the Department of Employment and Training. Line 10b. Massachusetts State Lottery Winnings Enter in line 10b all winnings from the Massachusetts state lottery. Do not enter less than ?0.? You may only deduct the price of your winning ticket. Lottery losses are not deductible under Massachusetts law. Lottery losses claimed as itemized deductions on U.S. Form 1040, Schedule A are not allowed on your Massachusetts return. Note: DOR routinely matches the amounts in line 10b with files from the Lottery Commission. Add lines 10a and 10b and enter the total in line 10. Line 11. Other Income (from Schedule X) Alimony Received, Taxable IRA/Keogh and Roth IRA Distributions, Other Gambling Winnings, Fees and Other 5.3% Income ?Other 5.3% income? includes the items listed above and must be included on Schedule X. Enter the total from Schedule X, line 5. Not less than ?0.? Be sure to enclose Schedule X with your return. Enclose an additional statement if more space is needed. Failure to enclose this schedule will delay the processing of your return. See Schedule X instructions. Line 12. Total 5.3% Income Add lines 5 through 11 and enter the total in line 12. Remember to subtract any losses marked with an ?X? when calculating the total. Apportionment ? Nonresidents Only Sometimes your business or employment requires you to work both inside and outside Massachusetts, but you do not know the actual amount of income you earned from working in Massachusetts. In this case, you must apportion your income so that only the correct portion (the amount attributable to Massachusetts) will be taxed by Massachusetts. Some nonresidents must use the Nonresident Apportionment Worksheet in line 13 for this purpose. Who Cannot Apportion Income? If you know the actual amount of your Massachusetts source income, do not apportion. Report your income taxable in Massachusetts on your Massachusetts return. Examples of nonresidents who cannot apportion include: ? an employee whose actual Massachusetts income is shown on Form W-2; ? an employee whose Form W-2 does not indicate initially his/her actual Massachusetts income but whose employer issues a corrected Form W-2 or other statement which breaks down this amount. Since your employer is required by law to withhold Massachusetts tax on your Massachusetts wages, this breakdown will be easy to obtain; and ? a self-employed person whose actual Massachusetts income is known, such as a surgeon who comes to Massachusetts to perform a specific operation for a set fee. In the few cases when your employer fails to issue a separate Form W-2 that includes only Massachusetts earnings, you may use the Nonresident Apportionment Worksheet to adjust your earnings. Who Must Use the Nonresident Apportionment Worksheet? If your employment or business took you both inside and outside Massachusetts and you do not know the actual amount of income you earned in Massachusetts, you must use the Nonresident Apportionment Worksheet if you are a self-employed person or employee who is on an hourly, daily, weekly, monthly or mileage basis, or whose compensation depends upon sales, at least some of which take place outside of Massachusetts. Who Can Apportion Income But Cannot Use the Nonresident Apportionment Worksheet? If you do not know the actual amount of income you earned in Massachusetts from one business or employment, but you do not fit into any of the categories listed in the preceding section, you should not use the Nonresident Apportionment Worksheet. See the section on ?Special Apportionment Methods? for your apportionment method. Examples of nonresidents who must apportion income using one of these special methods include: ? an independent business or professional person whose income does not depend on sales, days or mileage; ? an entertainer or athlete whose income does not depend solely on receipts or winnings; ? a general or limited partner in a partnership; and ? a shareholder of an S corporation with Massachusetts source income. Apportionment Methods If you use the Nonresident Apportionment Worksheet, fill in the oval for the appropriate basis and then follow the instructions. If you have more than one business or employment requiring the use of the worksheet, complete and enclose one worksheet for each business or employment. 12 Line by Line Instructions