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Sheena Curtis, CPA

Maine Income Tax Conformity Bill Becomes Law: What You Need to Know

2018-09-25

The Maine income tax conformity bill became law on September 12, 2018, without Governor Paul LePage’s signature. The legislation is in response to the Tax Cuts and Jobs Act (TCJA) of 2017. In addition to updating the IRC conformity date from December 31, 2016 to March 23, 2018, the new legislation makes several other changes that impact both businesses and individuals. Here are some highlights of the legislation.

Impacts on Businesses

  • Tax Rates: The legislation drastically changes the corporate income tax brackets beginning in 2018:

    TAX RATE INCOME TAX BRACKETS
    Tax Years beginning
    before 2018
    Tax years beginning
    in 2018
    3.5%   $0 - $25,000   $0 - $350,000
    7.93% $25,001 - $75,000 $350,001 - $1,050,000
    8.33% $75,001 - $250,000 $1,050,001 - $3,500,000
    8.93% $250,001 or more 3,500,001 or more
  • Net Operating Losses: the TCJA limits the Federal NOL deduction to up to 80% of a taxpayer’s taxable income. The Maine legislation reverses the effects of the new limit on the NOL deduction, and allows a Maine NOL deduction of up to 100% of a taxpayer’s taxable income for tax years beginning after 2017.
  • Credits: The law creates a credit for employer-paid family and medical leave, equal to the federal credit of the TCJA. The credit is a nonrefundable credit that can be applied to Maine income and insurance premiums taxes for tax years beginning after 2017.
  • Business Income Deduction: The TCJA created a 20% deduction for qualified business income from a pass-through entity. This deduction is not applicable for Maine income tax purposes for individuals, estates, or trusts.
  • Section 179 and Bonus Depreciation: The legislation made no changes to the previous rules for expensing and depreciating new eligible assets under section 179 and bonus depreciation. Maine will continue to conform to the Federal Section 179 limits, and will continue to decouple from the federal bonus depreciation provisions. The Maine Capital Investment Credit, applicable to assets placed in service in Maine for which federal bonus depreciation was taken, is unchanged.
  • Other Maine Changes: The law also eliminates corporate alternative minimum tax (AMT) and the Maine addback for the federal domestic production activities deduction (DPAD), both of which the TCJA eliminated. These changes apply for tax years beginning after 2017.

Impacts on Individuals

  • Standard Deduction: Under the new legislation, the standard deduction will be the same as for federal purposes. The law also increases the amount at which the standard deduction begins to phase out.
  • State Tax Deduction: The new legislation counters the heavily scrutinized new federal $10,000 limitation on itemized deductions for state and local taxes by allowing property taxes not deducted for federal purposes to be added to the taxpayer’s Maine itemized deductions.
  • Personal Exemption: The new legislation establishes a $4,150 Maine personal exemption deduction for taxpayers and spouses. The deduction cannot be claimed for those who are dependents on another taxpayers return. Under the TCJA, the personal exemption deductions for federal purposes were removed.
  • Dependents: Although you can’t claim the personal exemption deduction for dependents, the legislation did create a Dependent Exemption Credit. This credit is nonrefundable and would be equal to $300 for each child or dependent claimed for federal child tax credit purposes.

All of the changes pertaining to individuals apply to tax years beginning after 2017 and are subject to being phased-out for higher-income taxpayers.

Moving Forward

Earlier this year, Governor Paul LePage warned that taxpayers may need to file amended tax returns, due to the failure of the legislature to pass a conformity bill sooner. Taxpayers should review the positions taken on 2017 returns that have been filed to determine if any amendments are needed in light of the new legislation. Additionally, the significant change in corporate tax brackets, greater certainty regarding tax depreciation and expensing, and the numerous other provisions should be considered as taxpayers plan for 2018 and make their final estimated tax payments.