Maine Tax Form 1040ME Schedule A - adjustments to tax

Instructions for 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 Public Employees 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 Public Employees 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 only if the total of Maine tentative alternative minimum taxable income (“AMTI”) (federal Form 6251, line 28 plus Maine addition income modifications [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 file 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 calling (207) 624-7894.

Line 9. MAINE SEED CAPITAL CREDIT. The Finance Authority of Maine (“FAME”) administers this program. FAME issues a tax credit certificate 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. CREDIT FOR EDUCATIONAL OPPORTUNITY. The credit is available to Maine residents who obtain an associate’s or bachelor’s degree from a Maine college, junior college or university and who, after graduation, live, work and pay taxes in Maine and who make eligible education loan payments. Enter the credit amount from the Credit for Educational Opportunity Worksheet for Individuals available at www.maine.gov/revenue/forms. 36 M.R.S.A. § 5217-D.

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. Maine taxable income must be increased by the amount of the forest management planning expenses also claimed as a deduction for federal income tax purposes. 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 defi ned 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 hightech 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 “hightechnology 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 defi nition of qualified lessor was enacted by the legislature. A qualified lessor is now defi ned 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 qualifi es as a lease for federal purposes under Revenue Procedure 2001-28. 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 certifi ed by the Department of Economic and Community Development is allowed a nonrefundable credit equal to the tax on income related to the certifi ed 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 certificate 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 fi nancial 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 certifi cation must be submitted to the Department of Economic and Community Development. The credit is equal to 100% of the income tax liability associated with qualified activity for each of the first five tax years. The credit is 50% of the Maine tax liability for each of the second fi ve 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 certifi cation 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 certifi ed 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 benefi t 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.
•  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 defi ned by 36 M.R.S.A. § 5219-Q(1). Carryover provisions apply. 36 M.R.S.A. § 5217.
•  FAMILY DEVELOPMENT ACCOUNT CREDIT. This credit is available to contributors to family development matching fund accounts. The Finance Authority of Maine certifi es 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. Nonrefundable Historic Rehabilitation Credit for qualified expenditures incurred prior to 2008: A taxpayer is allowed a nonrefundable credit equal to the amount of the federal credit claimed for the taxable year with respect to qualified expenditures incurred prior to 2008, including carryovers, for rehabilitation of certifi ed historic structures located in Maine. The credit is limited to $100,000 annually per taxpayer. 36 M.R.S.A. § 5219-R(1). You must complete and attach a tax credit worksheet. Refundable Historic Rehabilitation Credit for qualified expenditures incurred after 2007. You must complete and attach the tax credit worksheet. Eligible rehabilitations are certifi ed by the Maine Historic Preservation Commission. Expenditures incurred prior to 2008 and after 2013 do not qualify for the credit. The refundable credit is either 1) 25% of qualified expenditures with respect to certifi ed historic structures located in Maine and for which a federal credit is claimed under the Code Section 47; or 2) 25% of qualified expenditures between $50,000 and $250,000 with respect to certifi ed historic structures located in Maine and for which a federal credit is not claimed. This credit must be claimed in the tax year the property is placed in service. Eligible rehabilitations containing at least 33% (25% in certain cases) of the square footage in affordable housing may qualify for a 30% credit. Although the credit is refundable, only 25% of the credit may be claimed in each of 4 years, beginning with the year of eligibility. The credit is further limited to $5 million for each certified rehabilitation. Limitation and recapture provisions apply. 36 M.R.S.A. § 5219-BB.
•  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 qualified 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.

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.

Instructions for SCHEDULE 3 CREDIT FOR INCOME TAXES PAID TO OTHER JURISDICTIONS

WHO MAY CLAIM THE CREDIT?

Generally, if a resident of Maine (excluding “Safe Harbor” residents) is required to pay income taxes to another jurisdiction, that person may claim a credit on the Maine individual income tax return for the taxes paid to the other jurisdiction (36 M.R.S.A. § 5217-A). The credit is calculated on Maine Schedule 3, entered onto Maine Schedule A, Section 2, line 8, and appears as a tax credit on page 1 of the Maine long form (Form 1040ME). The credit is limited to the Maine tax calculated on the income taxed by the other jurisdiction or the actual tax assessed on that income by the other jurisdiction, whichever is less.

A nonresident or “Safe Harbor” resident of Maine may not claim a credit for income taxes paid to another jurisdiction on Schedule 3. Instead, nonresidents and “Safe Harbor” residents are allowed a credit based on the amount of non-Maine source income as calculated on Schedule NR or NRH, instead of the Schedule 3 credit.

A part-year resident usually cannot claim a Schedule 3 credit. Occasionally, however, a situation may occur where a part-year resident is entitled to a Schedule 3 credit .(See " Double Resident credit" instructions")

GENERAL INFORMATION

To qualify for the Schedule 3 credit, the other taxing jurisdiction to which income taxes are paid must be another state of the United States, a political subdivision of any state, the District of Columbia, or a political subdivision of a foreign country that is analogous to a state of the United States (for example, New Brunswick, Canada). If a resident has to pay income taxes to both a state and a political subdivision of a state (usually a city), the taxes of the state and the political subdivision must be combined when calculating the allowable credit on Schedule 3.

The credit is limited to the portion of the individual’s Maine income tax that relates to the income being taxed by the other jurisdiction that is derived from sources in that jurisdiction. Income sourced to another state must be determined in the same way that a Maine nonresident calculates Maine-source income for purposes of Schedule NR or Schedule NRH (see page 4). Also see 36 M.R.S.A.§ 5142 and Maine Rule 806. The credit also cannot be more than the income tax actually paid to the other jurisdiction. See Schedule 3 worksheet on page 5.

The credit is calculated by dividing the income sourced to and taxed by the other jurisdiction by the taxpayer’s Maine adjusted gross income. The resulting percentage is multiplied by the Maine tax liability (before credits) to determine the amount of Maine tax that relates to the income being taxed by the other jurisdiction. The lesser of this amount or the actual taxes paid to the other jurisdiction (on income sourced to that jurisdiction) is the amount of the credit.

For example: Mildred is a Maine resident and had Maine adjusted gross income of $50,000 in 2008. $10,000 of her income was earned in and taxed by assachusetts. Assume that Mildred’s income taxes for Maine are $2,894 based on $50,000 Maine adjusted gross income. Her income taxes for Massachusetts are $507 (based on $10,000 in Massachusetts wages less $440 exemption amount). The portion of Mildred’s $2,894 tax liability due to Maine that is attributable to the $10,000 earned in Massachusetts is $579 ($10,000 divided by $50,000, which is 20%, x $2,894). She may claim a $507 credit for taxes paid to Massachusetts (the lesser of $579 and $507 of actual taxes assessed by Massachusetts). In this example, Mildred receives a full credit for the taxes paid to Massachusetts. However, if her Maine tax liability had only been $2,000, and the Massachusetts tax remained the same, she would have only received a $400 credit ($2,000 x 20%, or $400, which is less than the $507 tax assessed by Massachusetts).

Generally, if Maine’s income tax rate is higher than another jurisdiction’s income tax rate, the taxpayer will usually get credit for the entire amount of taxes actually paid to the other jurisdiction. If Maine’s tax rate is lower than the other jurisdiction’s rate, then the taxpayer will usually get credit only for the percentage of the Maine tax that relates to the income taxed by the other jurisdiction.

An individual may use only the actual amount of income taxes imposed by the other jurisdiction as the basis for the Schedule 3 credit, not the amount of income taxes withheld for that jurisdiction.

Income taxes imposed by another jurisdiction means the tax after credits (except withholding and estimated tax payments).

To continue with the example above, let’s assume that Massachusetts had withheld $700 from Mildred’s paychecks. When she completed her Massachusetts income tax return, she was entitled to a $193 refund ($700 withholding minus $507 tax liability). Mildred cannot use the $700 withholding as the basis for the Schedule 3 credit; she may use only the $507, her actual tax liability to Massachusetts. Whether Mildred received a refund or had to pay additional money, the basis for the credit is the actual tax liability to Massachusetts.

Multiple Taxing Jurisdictions: If an individual has to pay income taxes to more than one other jurisdiction, such as Massachusetts and Connecticut, the individual must complete a separate Schedule 3 for each jurisdiction. The separately calculated credits are then added together to arrive at the total credit for taxes paid to other jurisdictions. The combined total credit cannot reduce the Maine tax liability below zero.

Business Taxes: The tax eligible for the Schedule 3 credit must have been imposed on the individual. It cannot have been imposed on another entity, such as a partnership, S corporation or C corporation, even though the individual may own, or partly own, the company. However, an individual may claim the credit based on income taxes imposed by another jurisdiction on a sole proprietorship since this entity is not considered distinct and separate from its owner.

Taxable Year: The income tax being imposed on the individual by another jurisdiction that is eligible for the Schedule 3 credit is limited to the taxes imposed by the other jurisdiction in the same taxable year as the Maine return on which the Schedule 3 credit is being claimed. Taxes paid to another jurisdiction for a prior year may not be claimed as a credit on a current year Maine income tax return, even if the income to which the prior year’s taxes relate now appears on the Maine return.

For example: Ellen, a resident of New York, sold a piece of property in New York in 2006 on an installment sale basis. In 2008, Ellen moved out of New York and became a Maine resident. New York required Ellen to report the entire future gain from the installment sale on her 2008 New York return or to post a bond to ensure that she filed the appropriate returns with New York until all the gain is reported. She opted to include all the gain on the 2008 return, even though recognition of the installment sale had not changed for federal purposes. The actual amount of the installment sale gain received in 2008 will appear on Ellen’s federal and Maine returns. Therefore, her Schedule 3 credit for 2008 is limited to the New York tax on that portion of the gain reported to Maine. In no event may her taxes due to Maine be reduced below zero. When Ellen fi les her 2009 income tax returns, she will report the amount received in 2009 from the installment sale to both the IRS and to Maine. Because she did not have any tax liability in New York for tax year 2009 she will not be allowed to claim a Schedule 3 credit in 2009.

Amended Return: If an individual amends an out-of-state return for a prior year, the individual must amend the Maine return for the corresponding year to report the adjustment within 90 days of the change. A refund claim must be filed within the statute of limitations period for making a refund claim (generally within 3 years of fi ling the original return).

Maine Minimum Tax: The credit for income taxes paid to another jurisdiction cannot be used to offset any tax liability due under the Maine minimum tax. Instead, the Maine minimum tax has provisions built into its calculations to allow a credit against the Maine minimum tax if an individual is required to pay a minimum tax to another jurisdiction.

Source of Income: Generally, income of a Maine resident (except “Safe Harbor” residents) that is sourced to and taxed by another jurisdiction can be used as the basis for a Schedule 3 credit. Income sourced to another state must be determined in the same way that a Maine nonresident calculates Maine-source income for purposes of Schedule NR or Schedule NRH. See also 36 M.R.S.A. § 5142 and Maine Rule 806.

Income sourced to another jurisdiction may include the following:

1. Salaries and wages earned working in the other jurisdiction, including all taxable benefits such as annual and sick leave;
2. Distributive share of income (loss) from partnerships and S corporations apportioned to the other jurisdiction;
3. Shares of trust and estate income derived from sources in the other jurisdiction;
4. Income (loss) attributed to the ownership or disposition of real or tangible personal property located in the other jurisdiction.
5. Gain (or loss) from sale of a partnership interest, except certain investment partnerships.

NOTE: Income that cannot, for purposes of the Schedule 3 credit, be sourced to the other jurisdiction includes income from intangible sources, such as interest, dividends, pensions, annuities, gains or losses attributable to intangible personal property (except for a gain (or loss) from the sale of a partnership interest), unless such income is attributable to a business or profession carried on in that jurisdiction. Also salaries and wages earned while working in Maine, whether for the convenience of the employee or at the request of the employer, cannot be sourced to another jurisdiction for purposes of claiming this credit.

Dual Residence Credit: Individuals who are considered to be residents of both Maine (excluding “Safe Harbor” residents) and another state for income tax purposes may qualify for a dual resident credit under 36 M.R.S.A. § 5128. For more information, see www.maine.gov/ revenue/forms or call (207) 626-8475.

DOUBLE RESIDENT CREDIT

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 (Schedule NR/NRH) and a credit for income taxes paid to another jurisdiction (Schedule 3). 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 (Schedule NR/NRH) is calculated first and is based on the income earned while a nonresident of Maine. The credit for income taxes paid to another jurisdiction (Schedule 3) 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 Schedule 3 credit. 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 Schedule 3 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 FOR THOSE CLAIMING BOTH CREDITS:

NOTE to Nonresident and “Safe Harbor” Resident Servicemembers- See the instructions on page 8 for completing your Maine income tax return. Certain
military compensation of nonresident or“Safe Harbor” resident servicemembers is excludable from Maine taxable income.

1. Determining Maine Taxable Income. Maine taxable income is the federal adjusted gross income adjusted by Maine modifi cations, exemptions and deductions, calculated as if you were a Maine resident for the entire year. This establishes the appropriate tax rate to be applied to the taxpayer’s income. Complete the Maine long form through the Total Tax line (Form 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 (line 8). The credit for tax paid to other jurisdictions will be calculated later using Schedule 3. Do not calculate the Total Credits on Schedule A, line 19 at this point. Enter the amount from line 4 of Schedule A on Form 1040ME, line 21 and use the amounts on lines 5 and 7 of Schedule A for purposes of calculating the nonresident credit on Schedule NR or Schedule NRH under item 3 below.
3. Calculate the nonresident credit using Schedule NR/NRH. Complete Maine Worksheets A, B, and either Schedule NR or NRH according to the instructions on the form.
4.  Calculate the credit for taxes paid to other jurisdictions according to the Schedule 3 Worksheet on page 7. Enter the result on Schedule A, line 8.
5.  Complete Maine Schedule A and Form 1040ME. Attach a copy of Schedule 3 (on page 7) and Schedule NR or NRH to your return.