Massachusetts is considering delaying how it adopts federal tax changes enacted in 2025 under the One Big Beautiful Bill Act (OBBBA). The proposal, H.4975, does not change federal tax law. It changes when Massachusetts follows it.
That timing difference could affect cash flow, compliance, and planning decisions beginning in 2025.
Bottom line: Federal tax changes are already effective for 2025. Massachusetts may delay adopting several of those changes for up to two years.
As a result:
- Federal and Massachusetts taxable income could diverge in 2025
- Certain deductions may be delayed at the state level
- Businesses may need separate state and federal calculations
- The impact may differ depending on entity type
Why This Matters
Massachusetts does not conform to the Internal Revenue Code the same way for every taxpayer.
- Corporations generally follow rolling conformity.
- Pass-through entities and individuals generally follow static conformity, tied to the Code as of January 1, 2024, with limited exceptions.
H.4975 would delay adoption of several federal changes for two years. As drafted, corporations may ultimately benefit under rolling conformity once the delay period ends. The outcome is less clear for pass-through entities and individuals, which represent the majority of closely held businesses.
Because federal law is already effective for 2025, businesses should expect that federal and Massachusetts taxable income may not align this year. This is not a change in federal tax policy. It is a change in Massachusetts timing.
Where Things Stand
The Joint Committee on Revenue held a hearing on H.4975 on February 12, 2026. The administration supported a phased approach to protect state revenue, while other stakeholders pushed for faster conformity or permanent decoupling. Legislative leaders have indicated that a decision may be needed soon given budget considerations and the approaching filing season. In the meantime, uncertainty is already influencing extension and planning strategies.
Key Business Impacts to Watch:
Research and Development Costs
Federal law changed how research and development costs are deducted beginning in 2025. Massachusetts treatment does not perfectly mirror the federal rules. In some cases, state treatment already differs, and H.4975 could extend or complicate those differences.
For businesses with meaningful R&D activity, the practical takeaway is simple: do not assume your Massachusetts deduction will match your federal deduction in 2025. The result may vary based on entity structure and future guidance. This is an area where early modeling and close monitoring matter.
Capital Investment and Financing
H.4975 would delay several federal provisions until tax year 2027, including:
- Expanded Section 179 expensing
- Changes to business interest expense limitations
- Certain bonus depreciation provisions
For 2025 and 2026, businesses may need to maintain separate federal and Massachusetts depreciation and interest calculations. Large capital purchases and leveraged transactions should be reviewed with state timing differences in mind.
Pass-Through Entity Excise
The bill proposes expanding the elective Massachusetts pass-through entity excise to include income subject to the four percent surtax. For eligible entities, this may provide additional federal SALT deduction relief. As with the current election, this remains an annual decision that should be evaluated in the context of each owner’s broader tax profile.
Future Federal Changes
H.4975 also introduces a mechanism that would automatically delay Massachusetts adoption of future federal tax changes that exceed a defined revenue threshold. If enacted, temporary misalignment between federal and Massachusetts rules could become more common.
What Businesses Should Be Doing Now
With federal changes effective in 2025 and Massachusetts adoption uncertain, businesses should:
- Model 2025 federal and Massachusetts taxable income separately
- Revisit estimated tax payments
- Factor delayed state deductions into cash flow planning
- Confirm how entity structure affects conformity treatment
- Evaluate whether the pass-through entity excise election remains beneficial
- Monitor legislative developments closely
The primary risk is assuming state and federal rules will align automatically.
A Practical Path Forward
H.4975 reflects an effort to balance fiscal stability with long-term competitiveness. For businesses, the priority is clarity and preparation.
At LGA, we are working with clients to quantify potential 2025 differences and incorporate them into cash flow, extension, and capital planning decisions. As the legislative process evolves, we will continue to provide practical, business-focused updates.
If you would like to discuss how these proposed Massachusetts tax conformity changes may affect your business, our team is here to help.
