What Is the MA Bank Interest Exemption?
Understand the Massachusetts bank interest exemption. This state tax benefit is determined by your age, filing status, and the location of your bank.
For many years, Massachusetts taxpayers could reduce their taxable income by deducting a certain amount of interest earned from savings accounts within the state. However, a significant legislative change has altered this landscape. Effective for tax years beginning on or after January 1, 2024, this specific tax deduction has been eliminated.
Repeal of the Bank Interest Deduction
The Massachusetts bank interest deduction was officially repealed as part of the Fiscal Year 2025 Budget Act. The law formerly permitted a deduction of up to $100 for individuals, heads of household, and those married filing separately. For married couples filing a joint return, the deduction was up to $200.
This tax benefit was specifically tied to interest from savings deposits, savings accounts, and share savings accounts held in banking institutions chartered by Massachusetts. Interest earned from credit unions or banks located outside of the state was never eligible for this particular deduction.
The elimination of this deduction is part of a broader set of tax law adjustments within the state. Lawmakers have made several updates, including changes to credits and filing requirements that affect various taxpayers differently. The repeal of the interest deduction simplifies one small part of the tax code but requires taxpayers who previously claimed it to adjust their state tax calculations accordingly.
Impact on Your Tax Return
The direct consequence of this repeal is that all interest income from savings accounts, including those at Massachusetts banks, is now fully subject to the state’s 5% income tax rate. When preparing your state tax return, you will report your total interest income on Massachusetts Schedule B, which covers interest, dividends, and certain capital gains. Unlike in previous years, you will not find a line or provision to subtract the bank interest amount.
This change requires careful attention from taxpayers who have historically relied on this deduction to lower their state tax liability. The income that was once exempt must now be included in your total taxable income calculation. While this specific deduction is gone, taxpayers should be aware of other potential changes for the 2024 tax year, such as an increased Child and Family Tax Credit of $440 per qualifying individual and an inflation-adjusted threshold for the 4% surtax on high earners, which now applies to income over $1,000,000.