Massachusetts taxation of distributions from deferred income accounts (IRAs and similar) is different from both Federal rules of taxation and almost all states. Massachusetts recognizes that a contribution into the account may well have been taxed in the year that the contribution to the account was made if the source was income earned in Massachusetts and so subject at the year to tax. This would be the typical case of a Massachusetts taxpayer filing Form 1 or a part-time taxpayer filing -Form 1-NR/PY. In that specific case, given the prior Massachusetts taxes taken, the Dept. of Revenue deems all distributions taken out to be non-taxable until and up to the point that the Basis (all monies having been contributed while subject to prior tax) is exhausted. Then following distributions become taxable. With the Basis exhausted, distributions going forward are taxable.
In a quirk of the regulation, in your case the distributions will be taxable as no Massachusetts tax was even imposed, even given the non-residential status of the IRA account.
Included in your Massachusetts gross income for the year paid:
- Distributions from an IRA account made to you. If you're a Massachusetts resident but also a beneficiary of a non-Massachusetts IRA, the entire IRA distribution is taxable since no Massachusetts tax was ever paid on the contributed income.
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