Massachusetts state tax on bank interest for non-resident alien

[taxquery]

Non-resident aliens (who are not residents of Canada) are not taxed on interest income from U.S. banks for the federal return as described here: https://www.irs.gov/individuals/international-taxpayers/certain-types-of-nontaxable-interest-income 

Since this type of income is not reported in forms 1040NR or 1040NR-EZ, are they exempt from Massachusetts state tax as well? 

[linear]

Bank interest is not taxable to non-residents of Massachusetts in general (certain other types of interest are).

See: https://www.mass.gov/service-details/learn-about-massachusetts-gross-income-for-nonresidents

[taxquery]

What if you are a non-resident alien (for federal tax purposes) on a visa but a resident of Massachusetts because you lived there for the full year?

Non-resident aliens on a visa don't have to pay tax on bank interests at the federal level. Does this also apply to Massachusetts tax for people who are "residents" of the state even though they are a non-resident alien?

[DanielV01]

If this income is not taxable to you on your Federal Return, it will not be taxable on your Massachusetts return, either.

The following link has information on this topic: Massachusetts Residency for Tax Purposes.  On that link, you will need to scroll a ways down, but you will eventually reach the following information that directly applies to you:  

Massachusetts treatment of Massachusetts source income

If you're a nonresident, your Massachusetts source income is excluded for Massachusetts purposes if:

1. You're a citizen of a foreign country, and
2. The income is excluded from federal gross income under an income tax treaty or convention that the United States is a part of.

Income you have to report:

• For types of Massachusetts sourced income that is not covered by treaties, report such income and pay tax on Form 1-NR/PY - Nonresident or Part-Year Resident Income Tax Return, or
• If there is no treaty between your country and the U.S., report and pay tax on income from Massachusetts sources on Form 1-NR/PY - Nonresident or Part-Year Resident Income Tax Return.

Since, as in point #2 above, the income you mention is excluded from U.S. tax filing, it will also be excluded from a Massachusetts state return you may be required to file on other income.

TurboTax does not support the preparation of Form 1040NR.  To receive this service, and the related state return, please see our partner service Sprintax:  TurboTax/Sprintax site

[taxquery]

@DanielV01 that rule you cited seems to apply for "nonresident". But it's not clear to me if that's referring to non-resident alien status at the federal level or nonresident status at the state level (as opposed to part-year or full year resident). What if someone is a non-resident alien at the federal level but a part-year or full-year resident of Massachusetts?

[DanielV01]

I had to look up several different sources in order to ensure my answer to you, as I didn't find a direct quote on the website I referred to in my earlier answer that specifically stated how to report and exempt the income.  The first document, from the Massachusetts Department of Revenue that answers your question more clearly, is this one:  Massachusetts - Taxes For Expats (click on link, and .PDF document will download.)  If you scroll down to FAQ #8, you'll read the following:      

8.  Am I subject to tax in Massachusetts on income that is covered by a tax treaty?

If the United States has a tax treaty with another country, Massachusetts will recognize the treaty and will exclude the income to the extent it is excluded federally...

However, the income received must be included in your Massachusetts gross income and reported as "wages" (quotes part of the article), and if the amount is deductible from Massachusetts gross income, it is claimed as a Schedule Y dedcution, you may still need to file a return if your income exceeds the threshold requirement for filing a tax return...

While that same article also mentions Form 1 NR/PY, this other article Income Tax Filing for Foreign Residents and Nonresidents FA states the following on page 7:  

Do my tax treaty benefits apply to my state taxes?

Whether or not a state chooses to honor federal income tax treaty agreements will vary on a state-by-state basis.  In Massachusetts, to the extent that income is excluded federally per a tax treaty, that income will also be exempt from state income tax.  The income must still be reported on the return as wages and then claimed as a deduction on Schedule Y, Line 4.

You will note that the article makes no specific reference to Form NR/PY, and that is because the same treatment can be made on Form 1 (MA resident return).  Open up the following PDF file of Schedule Y:  form 1 - Mass.gov (The link is only Schedule Y).  You will note that the aforementioned Line 4 states that you either exempt the income included in Form 1, Line 3 or Form 1-NR/PY, line 5.  

Although you are a Nonresident Alien, you will meet the statutory definition of a Massachusetts resident for tax purpose if you maintained a domicile (such as an apartment or a home) and were physically present in Massachusetts for at least 183 days.  That seems to be the case in your situation.  Regardless, if your interest income is exempt for Federal taxation because of a tax treaty, it is likewise excluded from Massachusetts.  But you will report it by including the interest income as "wages" on Line 3 of Massachusetts Form 1 (even though interest income is not technically wage income, that is the instruction for Form 1), and then exempt the income on Line 4 of Schedule Y.