Maine Tax Form 1040ME Schedule A - Adjustments to Tax Instructions

SCHEDULE A — MAINE TAX ADJUSTMENTS

NOTE: If you file Schedule NRH, multiply the joint amount (for both you and your spouse) of Schedule A, lines 3c, 5 and 7 by the percentage listed on Schedule NRH, Column B, line 7. Enter the result on the appropriate line of Schedule A. Also, see the note below if you are filing as a nonresident or “Safe Harbor” resident individual.

SECTION 1 - TAX ADDITIONS

 NOTE: Nonresidents/Part-year residents/“Safe Harbor” residents: Enter on Schedule A, lines 1 and 2, the amounts that relate to Maine-source income only. Do not include amounts based on pension income otherwise exempt from state taxation by federal law (Public Law 104-95).

Line 1. RETIREMENT PLAN DISTRIBUTIONS

If you choose to compute a separate federal tax on a lump-sum distribution from a retirement plan, you are subject to an additional Maine tax equal to 15% of the federal tax. NOTE: Distributions of Maine State Retirement System contributions previously taxed by Maine are not subject to this special tax.

Line 2. EARLY DISTRIBUTION FROM QUALIFIED RETIREMENT PLANS

If you are subject to the special federal tax on an early distribution from a qualified retirement plan, you are subject to an additional Maine tax equal to 15% of the federal tax. NOTE: Distributions of Maine State Retirement System contributions previously taxed by Maine are not subject to this special tax.

Line 3a. MAINE MINIMUM TAX

Resident, part-year resident, nonresident and “Safe Harbor” resident individuals must complete the Maine Minimum Tax Worksheet to determine whether they owe a Maine minimum tax onlyif the total of Maine tentative alternative minimum taxable income (“AMTI”) (federal Form 6251, line 28 plus Maine addition income modifi cations [see the Maine Minimum Tax Worksheet for line 2]) is greater than the applicable Maine minimum tax exemption amount shown below. Individuals not required to file federal Form 6251 must complete a pro forma Form 6251 to determine the federal alternative minimum taxable income amount for Maine purposes. Taxpayers that do not owe a Maine minimum tax are not required to fi le the Maine minimum tax worksheet with their Maine income tax return.

*If the total of federal Form 6251, line 28 and Maine addition modifications is greater than the income amounts shown in the table above, use the Maine Minimum Tax worksheet for line 4 to determine the applicable exemption amount.

If you exceed these thresholds, you must complete a Maine Minimum Tax Worksheet to determine whether you owe Maine minimum tax. See instructions and supporting Worksheets available at www.maine. gov/revenue/forms or call (207) 626-8475.

Line 3b. Pine Tree Development Zone Credit

Complete and enclose the worksheet(s) available at www.maine.gov/revenue/forms or call (207) 626-8475.

SECTION 2 - TAX CREDITS

NOTE: Personal credits on lines 5, 6 and 7 taken by part-year resident, nonresident and “Safe Harbor” resident taxpayers and certain resident taxpayers filing Schedule NRH must be prorated based on the ratio of income subject to Maine tax to total income. For lines 5 and 7, this is done on Schedule NR, line 8 or Schedule NRH, line 10. Line 6 is prorated on the Worksheet for Child Care Credit. Unless otherwise stated, Maine business credits may be claimed in their entirety, up to the Maine tax liability. Carryover provisions may apply.

Tax Credit Worksheets Required. Except for line 11, you must complete and attach a tax credit worksheet for each tax credit claimed. Tax credit worksheets may be downloaded from the internet. Go to www.maine. gov/revenue/forms (select Worksheets for Tax Credits). You may also order worksheets by telephone by calling (207) 624-7894.

Line 9. MAINE SEED CAPITAL CREDIT

The Finance Authority of Maine (“FAME”) administers this program. FAME issues a tax credit certifi cate after verifying the eligibility of the investor. The taxpayer must enclose a copy of the certificate with Schedule A, Form 1040ME when requesting a tax credit under this program. This credit is limited to 50% of the Maine income tax due. Carryover provisions and other limitations apply. More information is available at www.famemaine.com/business/equityCapital_MaineSeedCapitalTax.asp or call FAME at (207) 623-3263. 36 M.R.S.A. § 5216-B.

Line 10. EMPLOYER-ASSISTED DAY CARE CREDIT

An employer may claim a credit for providing day care services for or paying day care expenses of employees. This credit is limited to the lowest of $5,000, 20 percent of the cost incurred, or $100 per child enrolled on a full-time basis. It cannot exceed the Maine income tax due. This credit doubles if the child care provided is quality child care as defined by 36 M.R.S.A. § 5219-Q(1). Carryover provisions apply. 36 M.R.S.A. § 5217.

Line 11. FOREST MANAGEMENT PLANNING CREDIT

Once every 10 years an individual taxpayer is allowed a credit of up to $200 for expenses incurred in developing a forest management and harvest plan for a parcel of forest land more than 10 acres and located in Maine. A professional forester who is not in the regular employ of the owner must prepare the plan. The taxpayer claiming the credit must attach to the income tax return a statement from the forester supporting the claim and a sworn statement that the credit has not been claimed in the previous 10 years. 36 M.R.S.A. § 5219-C.

Line 12. RESEARCH EXPENSE TAX CREDIT

The credit equals 5% of qualified research expenses incurred during the taxable year that exceed the average qualified research expense for the previous three tax years, plus 7.5% of the basic research payments determined pursuant to IRC § 41(e)(1)(A). Only expenditures for research conducted in Maine qualify for the credit. The term “qualified research” is defined in IRC § 41(d). The credit is limited to the tax liability of the taxpayer. Carryover provisions apply. 36 M.R.S.A. § 5219-K.

Line 13. RESEARCH & DEVELOPMENT SUPER CREDIT

Businesses whose research expenses increased by more than 50% over the average research expenses incurred in the 3 tax years immediately preceding June 12, 1997 qualify for the credit. The credit is equal to the excess over 150% of the 3-year average. It is limited to 50% of the net income tax due after other credits and may not reduce the taxpayer’s tax liability to less than the net tax liability in the preceding year after other credits. Carryover provisions apply. 36 M.R.S.A. § 5219-L.

Line 14. HIGH-TECHNOLOGY CREDIT

Businesses primarily engaged in high-tech activities and that (a) lease, (b) purchase and use, or (c)purchase and lease computer equipment, electronic components and accessories, communications equipment or computer software placed in service in Maine and used in “high-technology activities” qualify. The credit is equal to the adjusted basis of eligible equipment for federal income tax purposes or the amount of lease payments made (by lessee) minus any lease payments received for the eligible equipment during the tax year. The reimbursement period for the Business Equipment Tax Reimbursement must be reduced one year for each tax year the eligible equipment is included in the basis for the High-Technology Credit. Also, Maine taxable income must be increased by the amount of the investment credit base also claimed as a business expense for federal income tax purposes. In 2004, a change in the definition of qualified lessor was enacted by the legislature. A qualified lessor is now defined to require that: 1) the equipment being leased must be used primarily in a high technology activity; 2) the lessor derives no more than 1/3 of aggregate lease payments from the lease of eligible equipment; and 3) the lease qualifies as a lease for federal purposes under Revenue Procedure 200128. A qualified lessor may claim a high-technology credit with regards to leased equipment only if the lessee waives the right to claim the credit. This change applies to tax years beginning after 2003. Other limitations apply. Carryover provisions apply. 36 M.R.S.A. § 5219-M.

Line 15. MAINE MINIMUM TAX CREDIT

Enter the amount from line 20 of the Maine Minimum Tax Worksheet available at www.maine.gov/ revenue/forms or call (207) 626-8475.

Line 16. MEDIA PRODUCTION TAX CREDIT

A media production company engaged in a media production that is certified by the Department of Economic and Community Development is allowed a nonrefundable credit equal to the tax on income related to the certified media production. Unused credit amounts may not be carried over to prior or future years. Businesses claiming the Pine Tree Development Zone tax credit are not eligible for this credit. Copies of the Media Production Certifi cate and the Media Production Wage Reimbursement and Tax Credit Certificate must be attached to your return. 36 M.R.S.A. § 5219-Y.

Line 17. PINE TREE DEVELOPMENT ZONE TAX CREDIT

A taxpayer engaged in the business of financial services, manufacturing or a targeted technology, as defined by 5 M.R.S.A. § 15301, that is located within a Pine Tree Development Zone may be eligible for this credit. Certain manufacturers are not required to be located in a Pine Tree Development Zone. To be eligible, the taxpayer must add new, full-time jobs that meet certain wage requirements and offer new employees retirement and health care benefits. Application for certification must be submitted to the Department of Economic and Community Development. The credit is equal to 100% of the income tax liability associated with qualifi ed activity for each of the first five tax years. The credit is 50% of the Maine tax liability for each of the second five tax years. For further information, the credit application worksheet, instructions and forms, see the MRS web site at www.maine.gov/revenue/forms. 36 M.R.S.A. § 5219-W.

LINE 18. OTHER TAX CREDITS

Enter the sum of the following credits. List the name of each credit claimed in the space provided.

• BIOFUEL PRODUCTION TAX CREDIT. A taxpayer is allowed a credit for the production of biofuel equal to 5¢ per gallon of biofuel produced. Biofuel means “any liquid or gaseous product or energy source... that is derived from agricultural crops or residues or from forest products or byproducts, as distinct from petroleum or other fossil carbon sources.” The credit cannot reduce tax liability below zero, but unused amounts may be carried forward for up to ten taxable years. The taxpayer must obtain certification from the Maine Department of Environmental Protection as to the biofuel eligible for the credit. A copy of the certificate must be attached to the return. 36 M.R.S.A. § 5219-X
• CLEAN FUEL CREDIT. The credit equals 25% of expenditures made or incurred during the tax year for construction, installation of, or improvements to any filling station or charging station in Maine for the purpose of providing clean fuels to the general public for use in motor vehicles. The credit automatically expires for tax years ending after December 31, 2008. 36 M.R.S.A. § 5219-P.
• EMPLOYER-PROVIDED LONG-TERM CARE CREDIT. An employer may claim a credit for expenses incurred in providing long-term care policy coverage as part of an employee benefit package. To qualify, the insurance policy on which the premiums are paid must be certified by the Maine Bureau of Insurance or the policy must meet the federal definition for a long-term care insurance contract (IRC § 7702-B(b)). The credit is limited to the lowest of $5,000, 20 percent of the cost incurred, or $100 per employee covered. 36 M.R.S.A. § 5217-C.
• CREDIT FOR DEPENDENT HEALTH BENEFITS PAID. Employers that offer a qualified health benefit plan and that employ fewer than 5 employees may qualify for a credit equal to the lesser of 20% of the dependent health benefits paid by the employer or $125 per employee with dependent health benefits coverage. A taxpayer that employs 5 or more employees after qualifying for the credit may continue to qualify for the credit for another 2 years. The credit is limited to 50% of the income tax due. The credit is subject to additional restrictions. Carryover provisions apply. 36 M.R.S.A. § 5219-O.
• FAMILY DEVELOPMENT ACCOUNT CREDIT. This credit is available to contributors to family development matching fund accounts. The Finance Authority of Maine certifies the allowable credit for each contributor. A copy of the certificate must be attached to the return. The credit is nonrefundable and must be taken after all other credits. Amounts claimed may not be claimed as itemized deductions for Maine purposes. Other limitations apply. 36 M.R.S.A. § 5216-C.
• HISTORIC REHABILITATION CREDIT. The credit is equal to the amount of the federal credit for rehabilitation of certified historic structures located in Maine. The credit is nonrefundable and is limited to $100,000 annually per taxpayer. The credit is subject to the same recapture provisions as under the Internal Revenue Code. 36 M.R.S.A. § 5219-R(1).
• JOBS AND INVESTMENT TAX CREDIT. A taxpayer, other than a public utility, may claim a tax credit for qualified jobs and investment subject to limitations. Eligibility for the credit requires the addition of (1)$5 million of IRC § 38 property based on the Internal Revenue Code of 1954, as of December 31, 1985, § 38(b)(1), and (2) 100 new employees attributable to the investment in Maine during the 24 months after placing the property in service. This credit is limited to $500,000 or the Maine income tax due, whichever is less. Jobs created between August 1, 1998 and October 1, 2001 must be covered by qualified retirement and health insurance plans and wages must be greater than the average per capita income in the labor market area in which the employee is employed. Carryover provisions apply. 36 M.R.S.A. § 5215.
• CREDIT FOR POLLUTION CONTROL BOILERS. A qualifi ed business is allowed a credit of 1.5¢ per kilowatt-hour (or equivalent) produced by a pollution reducing boiler. The credit may not reduce the taxpayer’s income tax liability below zero, but unused credit amounts may be carried over until exhausted. Eligible businesses and boilers must be certifi ed by the Department of Environmental Protection. The credit is repealed December 31, 2009. 36 M.R.S.A. § 5219-Z.
• QUALITY CHILD CARE INVESTMENT TAX CREDIT. Individual taxpayers making certified quality child care investments of no less than $10,000 qualify for a credit equal to $1,000 each year for 10 years, plus $10,000 at the end of the 10-year period. The credit is nonrefundable; however, unused credit amounts may be carried forward until used. The Maine Department of Health and Human Services (“DHHS”), Office of Child Care and Head Start must certify eligible investments. For questions about quality child care services and the certification process, call DHHS, Office of Child Care and Head Start at (207) 287-5099. 36 M.R.S.A. § 5219-Q.
• WIND POWER GENERATOR CREDIT. A community wind power generator that is certified by the Public Utilities Commission is entitled to an income tax credit for ten consecutive years following the commencement of operation. The credit is equal to the tax associated with the taxable income of the wind power generator. Qualifi ed generators may also be eligible for sales tax exemptions and/or reimbursements. Effective August 23, 2006. 36 M.R.S.A. § 5219-AA.

Line 21. ALLOWABLE CREDITS

The credit amounts claimed on Schedule A are not refundable. The credits, except for the Pine Tree Development Zone Tax Credit, cannot be applied against the Maine Minimum Tax. The total credits claimed cannot exceed the Maine regular income tax otherwise due for the taxable year.

PART-YEAR RESIDENT, NONRESIDENT AND “SAFE HARBOR” RESIDENT INSTRUCTIONS 

Nonresident individuals, including individuals who were nonresidents for only part of the year and “Safe Harbor” resident individuals, who have Maine-source income (described below) may owe a Maine income tax. The Maine tax is determined by first calculating a tax amount as if the part-year resident, nonresident or “Safe Harbor” resident were a Maine resident for the entire year and then reducing that amount by a “nonresident credit.” The Maine tax is calculated on the basis of the nonresident’s or “Safe Harbor” resident’s entire federal adjusted gross income and the Maine income modifications, itemized or standard deduction, personal exemption amount and credits. The nonresident credit is based on the amount of non-Maine source income. The nonresident credit is calculated on Schedule NR or Schedule NRH and entered on Form 1040ME, line 25. Note: Nonresident minimum taxability threshold: You may not be required to pay a Maine tax or file a return if: 1) the number of days worked in Maine as an employee is 10 or less, and 2) your only Maine income is compensation for personal services. For more information, see Maine Revenue Services Rule 806 and 36 M.R.S.A. §§ 5142(8-A) and 5220(2) available on the MRS web site at www.maine.gov/revenue (select Laws and Rules).

INCOME SUBJECT TO MAINE INCOME TAX

A part-year resident is subject to Maine income tax on all income received while a resident of Maine, plus any income derived from Maine sources during the period of nonresidence. A nonresident or a “Safe Harbor” resident, is subject to Maine income tax only on income derived from sources within Maine. This includes the following:

• Salaries and wages earned working in Maine, including all taxable benefits such as annual and sick leave;
• Distributive share of income (loss) from partnerships and S corporations operating in Maine;
• Shares of trust and estate income derived from Maine sources;
• Income (loss) attributed to the ownership or disposition of real or tangible personal property in Maine;
• Maine-source gain (or loss) from sale of a partnership interest. NOTE: To determine the gain or loss from the sale of a partnership interest attributable to Maine, divide the original cost of all tangible property of the partnership located in Maine by tangible property everywhere. Tangible property includes real estate, inventory and equipment. If you don’t know these amounts, contact the partnership. If more than 50% of the partnership’s assets consist of intangibles, the gain (or loss) is allocated to Maine based on the sales factor of the partnership. Divide the sales in Maine for the last full tax year of the partnership preceding the year of sale by the total sales for that same year. Multiply the result by the gain or loss on the sale of the partnership interest reported on your federal return. “Sales” for purposes of computing the sales factor are defi ned in Rule No. 801(.08). Include the gain (or loss) from the sales of a partnership interest on Worksheet B, Column E, line 6; and
• Maine State Lottery or Tri-State Lottery winnings from tickets purchased within Maine on or after July 13, 1993, including payments received from third parties for the transfer of rights to future proceeds related to Maine State Lottery or Tri-state Lotto tickets purchased in Maine plus all other income from gambling activity conducted in Maine on or after June 29, 2005.

Except for #5 above, income from intangible sources, such as interest, dividends, pensions, annuities, gains or losses attributable to intangible personal property, is not Maine-source income unless it is attributable to a business, trade, profession or occupation carried on in Maine.

SHOULD I FILE SCHEDULE NR OR SCHEDULE NRH?

Read the instructions on page 4. You must file Schedule NR if you are a part-year resident, nonresident or “Safe Harbor” resident individual required to file a Maine return, have income not taxable by Maine, and are using the same filing status used on your federal return.

You may elect to file single on the Maine return using Schedule NRH only if your filing status on your federal return is married filing jointly and your residency status is different from that of your spouse or both you and your spouse are nonresidents of Maine or “Safe Harbor” residents, but only one of you has Maine-source income. The nonresident or “Safe Harbor” resident spouse with no Maine-source income does not have to file a Maine return. Do not use Schedule NRH if your filing status on your federal return is single, head-of-household, or married separate.

IMPORTANT: Complete Worksheets A and B before completing Schedule NR or Schedule NRH. Also complete Worksheet C (Employee Apportionment Worksheet), if applicable. For a copy of Worksheet C, go to the Maine Revenue Service web site at: www.maine.gov/revenue/forms or call (207) 624-7894 (to order).

INSTRUCTIONS for WORKSHEET B - Income Allocation Worksheet for Part-year Residents/Nonresidents/“Safe Harbor” Residents

Part-year resident, nonresident and “Safe Harbor” resident individuals must complete Worksheet B to calculate Maine-source income for the entire taxable year. Married persons filing separate Maine income tax returns must complete separate Worksheets B.

Part-Year Residents: If you are unable to determine the exact amount of income, other than wages, earned during the period of Maine residency, divide the total income earned by 12 and multiply the result by the number of months you were a resident. This method can be used to allocate interest, dividends, pension or annuity distributions or other income received from intangible sources. Generally, this method cannot be used to determine Maine-source business income, rental income, or capital gains since this income is determined on the basis of where the business activity occurs or the location of the property.

NOTE: If you are filing Schedule NRH, DO NOT include your spouse’s income on Worksheet B.
Column A – Federal Income. Enter the amounts of income as reported on your federal return. Part-year resident, nonresident and “Safe Harbor” resident individuals must complete this column.
Column B – Maine Resident Period. Part-year residents, enter the portion from column A received during the period you were a Maine resident. If you were a nonresident of Maine for the entire year or a“Safe Harbor” resident, skip columns B and C and complete columns D and E.
Column C – Resident Period, income earned outside Maine. Part-year residents only - enter income from column B that you received while a resident of Maine that was earned outside Maine.
Column D – Nonresident Period. Enter income from column A that you received during the period you were a nonresident or “Safe Harbor” resident of Maine. Part-year resident, nonresident and “Safe Harbor” resident individuals must complete this column.
Column E – Nonresident Period Maine-source Income. Part-year resident, nonresident and ”Safe Harbor” resident individuals must complete this column. Enter income from column D that you received while a nonresident or “Safe Harbor” resident that was derived from or connected with Maine sources (described above).

If necessary, use Worksheet C (Employee Apportionment Worksheet) at www. maine.gov/revenue/forms to calculate the amount for column E, line 1.

Instructions for using Worksheet B to complete Schedule NR, line 1

1. Enter Worksheet B, column A, line 15 on Schedule NR, line 1, box A.
2. Add Worksheet B, column B, line 15 to Worksheet B, column E, line 15. Enter the total on Schedule NR, line 1, box B.
3. Subtract Worksheet B, column E, line 15 from Worksheet B, column D, line 15. Enter the result on Schedule NR, line 1, box C.
4. Follow the instructions for Schedule NR in order to complete lines 2 through 9 on Schedule NR.

Instructions for using Worksheet B to complete Schedule NRH, line 1

1. Complete Worksheet B, columns A through E.
2. Complete Schedule NRH, column B, lines 1a-1f from corresponding lines from Worksheet B, column A. For example, enter Worksheet B, column A, line 1 on Schedule NRH, column B, line 1a. NOTE: Schedule NRH, column B, line 1f must equal Worksheet B, column A, line 15.
3. Complete Schedule NRH, column C, lines 1a-1f by subtracting corresponding lines on Worksheet B, column E, from Worksheet B, column D. For example, subtract Worksheet B, column E, line 1 from Worksheet B, column D, line 1 and enter the result on Schedule NRH, column C, line 1a.
4. Follow the instructions for Schedule NRH in order to complete lines 2 through 11 on Schedule NRH.

Instructions for Part-year Residents Eligible to Claim Both the Credit for Tax Paid to Other Jurisdictions and the Nonresident Credit

Generally, a part-year resident cannot claim both a nonresident credit (Form 1040ME, line 25) and a credit for income taxes paid to another jurisdiction (Form 1040ME, Schedule A, line 8). However, when a part-year resident of Maine earns income in another jurisdiction both as a resident and as a nonresident of Maine during the same tax year, the part-year resident may be able to claim both credits. The nonresident credit is calculated first and is based on the income earned while a nonresident of Maine. The credit for income taxes paid to another jurisdiction is calculated next and is based on the income earned while a resident. This is the only time when a part-year resident can claim a credit for tax paid to other jurisdictions. A part-year resident can usually claim a nonresident credit, provided that the individual had income while a nonresident of Maine. Following are examples of when a taxpayer can or cannot claim both credits:

Both Credits Allowable: A taxpayer lives in New Hampshire and works in Massachusetts. In June, the taxpayer moves from New Hampshire to Maine, but continues to work in Massachusetts. This taxpayer could claim both credits. The nonresident credit would be based on the income earned prior to moving to Maine. The credit for income taxes paid to another jurisdiction would be based on the income earned after moving to Maine that was also taxed by Massachusetts. The income earned before moving to Maine, although taxed by Massachusetts, could not be used when calculating the credit for income taxes paid to another jurisdiction because the taxpayer was not a resident of Maine at the time the income was earned.

Nonresident Credit Only: A taxpayer lives in New Hampshire and works in Massachusetts. In June, the taxpayer moves from New Hampshire to Maine. The job in Massachusetts is terminated at the time of the move and a new job is obtained in Maine. The taxpayer could claim a nonresident credit based on the income earned in Massachusetts while living in New Hampshire. The taxpayer could not claim a credit for income taxes paid to Massachusetts because none of the income taxed by Massachusetts was earned while the taxpayer was a Maine resident.

FOLLOW THESE STEPS IF YOU ARE CLAIMING BOTH CREDITS:

1. The Maine income tax return begins with federal adjusted gross income, regardless of residency status. This establishes the appropriate tax rate to be applied to the taxpayer’s income earned in Maine or as a Maine resident. Complete Maine long Form 1040ME through the Total Tax line (1040ME, line 23). (If fi ling Schedule NRH, refer to the instructions for Schedule NRH.)
2. Complete Schedule A, Adjustments to Tax, exclusive of the credit for income taxes paid to another jurisdiction. The credit for tax paid to other jurisdictions will be calculated later. Do not calculate the Total Credits on Schedule A, line 19 at this point.
3. Calculate the nonresident credit using Schedule NR or NRH. Complete Schedule NR or NRH according to the instructions on the form.
4. Calculate the Credit for Taxes Paid to Other Jurisdictions on Schedule 3 on page 22. Enter on Schedule 3, line 1 the Maine adjusted gross income while a Maine resident (Form 1040ME, line 16 minus Schedule NR, line 6 or Schedule NRH, line 6, column C). Follow the instructions for completing lines 2, 3, and 5 on Schedule 3. On line 4a, enter your Maine tax (1040ME, line 20 minus line 25) and multiply the result by the percentage entered on line 3. On line 4b, if income taxes were paid to the other jurisdiction both while a resident and a nonresident of Maine, prorate the amount of income taxes paid to that jurisdiction based on the percentage of the income that was earned while a Maine resident. Enter Schedule 3, line 5 on Maine Schedule A, line 8.
5. Complete Maine Schedule A and the 1040ME long form return. Attach a copy of Schedule 3 and Schedule NR or NRH to your return.