Income Tax Maine

Pine Tree Development Zones

Maine Pine Tree Development Zones were originally select regions of the state where businesses who opened or expanded and added quality jobs were able receive special tax benefits.  The program has since been expanded to apply throughout Maine, although there are still two tiers of Pine Tree Development Zone.  The benefits are available for five years in Tier 1 and for 10 years in Tier 2.

Pine Tree Development Zone Benefits

Pine Tree Development Zone Benefits can reduce or eliminate income taxes on the additional profits a company generates by expanding in Maine.  The benefits of applying for and receiving PTDZ benefits and include a credit against corporate income tax, a credit against insurance premiums for financial services companies, a reimbursement for some of the state income tax resulting from the increase in activity, exemption from sales tax on business equipment purchases, exemption from sales tax on purchases that go into real estate improvements, and access to reduced electricity rates.  These benefits can be quite generous but the calculations involved can get fairly complicated, so they will be discussed in a separate blog post.


To qualify as a Pine Tree Development Zone Business, a company bust be operating in one of the following sectors:

  • Biotechnology
  • Aquaculture and Marine Technology
  • Environmental Technology
  • Advanced Technologies for Forestry and Agriculture
  • Manufacturing and Precision Manufacturing
  • Information Technology
  • Financial Services

Additionally, the company must be creating new “quality jobs” in Maine.  It cannot simply move jobs around within the state to claim PTDZ benefits, but it can relocate jobs from outside of the state to Maine.  To count as a “quality job”, the total compensation for the new employees must, including employer payments toward employee benefits, must be at least as much as the per-capita income for the county in which the job is created and the job must include access to a group health plan and a retirement plan subject to ERISA.

Application Process

A company cannot simply hire a new employee and claim PTDZ benefits.  To claim PTDZ benefits, a company needs to get certified as a PTDZ business by the Maine Department of Economic and Community Development (DECD).   Prior to announcing its plans to expand publicly, the company must write a letter to the DECD stating that they would not be creating the new jobs without the PTDZ benefits.  Once the DECD acknowledges the letter, the company can then complete an application for PTDZ benefits.  There are DECD representatives available to help business who are considering expanding in Maine apply for PTDZ benefits, and any business considering


Maine Department of Economic and Community Development –  “Governor’s Account Executives”

Maine Department of Economic and Community Development – PTDZ Benefits

Per-Capita Personal Income Table


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Amended Federal Income Tax

Amended Returns

Sometimes a tax return  which has already been filed needs to be changed or corrected.  The forms filed to correct income tax returns are called amended returns.  For individuals or married couples, they consist of a form highlighting the changes for the IRS (called a 1040x) and a corrected individual tax return (form 1040).  They can also include other forms or information that are needed to inform the IRS why the change is needed.

Reasons to File Amended Returns

Amended returns can result in an additional refund or more tax to be paid.  One common reason why people need to amend their tax returns is that they’ve filed too early.  Taxpayers who expect to have refunds sometimes file very early in the year to claim their refunds, only to receive a form (1099) reporting additional income that they had forgotten about.  When they receive the additional form, they need to file an amended return and pay the additional tax that is due on the income that was left off of the original return.

Amending a return to pay additional tax is no fun at all, but sometimes taxpayers can amend their returns to get additional money back.  This can happen because the original return contains an error in the IRS’s favor, because the taxpayer became aware of new information that helps the taxpayer, or because information that  was reported on a correct original return could have been reported in a different correct way to yield a better result.   Occasionally it even makes sense to amend prior return to pay additional tax when doing so sets the taxpayer up save even more money in the current year.


Opportunities to Amend for Refunds

Here some situations where taxpayers  should consider having a tax professional review their prior returns for opportunities to amend:

  • The taxpayer is in business and has spent significant money on equipment in recent years but the business has performed better or worse than expected since then.
  • The taxpayers are married but filed separate rather than joint returns for any of the past few years.
  • The taxpayers are a legally married same sex couple and were unable to file joint income tax returns before the Defense of Marriage Act (DOMA) was repealed.
  • The taxpayer has prepared his or her own return in the past, but has had new or more complicated tax situations in recent years and isn’t fully confident that the returns are correct.

These are just a few situations where it pays to have past returns reviewed and possibly amended by a tax professional, but there is a time limit on when you can do so.  For an amended return to result in a refund, it must be filed within three years of when the original return was filed or two years of when the tax was paid, whichever is later.  As of February, 2014, that means that individual income tax returns for 2010, 2011, and 2012 may still be amended to claim an additional refund if one is due.  Taxpayers will no longer be able to amend 2010 returns after April 15, 2014, unless the original returns were placed on extension during the 2010 filing season.  

Federal Filing Status Income Tax

Married Separately vs Married Jointly

Married taxpayers have the option of filing separate returns (with the status of Married Filing Separately, or MFS) or joint returns (Married Filing Jointly, or MFJ). Taxpayers are often unsure of which filing status will give them the best result, and there’s a common belief that filing separately is better than filing jointly. Under current tax law and in most common situations, the opposite is generally true. Married taxpayers who file joint returns tend to pay the same or less tax than they would if they filed separate returns.

To understand why, it’s important to consider the tax tables for joint and separate filers as well as some of the the special rules that apply to married taxpayers.  The 2013 tax rate tables for married taxpayers filing separately and filing jointly are provided below:


 Tax Tables – Joint and Separate

Taxable Income Rate Taxable Income Rate
$0 to $8925 10.0% $0 to $17,850 10.0%
$8,926 to $36,250 15.0% $17,851 to $72,500 15.0%
$36,251 to $73,200 25.0% $72,501 to $146,400 25.0%
$73,201 to $111,525 28.0% $146,401 to $223,050 28.0%
$111,526 to $199,175 33.0% $223,051 to $398,350 33.0%
$199,176 to $225,000 35.0% $398,351 to $450,000 35.0%
$225,001 and over 39.6% $450,001 and over 39.6%

The tax brackets for joint filers are twice as wide as the tax brackets for married taxpayers filing separately.  At first glance, it would appear that filing separately is no worse than filing jointly, but that is only true when both spouses would be in the same tax brackets on their separate returns.


Filing Status Comparison

The table below compares joint and separate filing status for a married couple where there primary wage earning earns $60,000 and their spouse earns $30,000.  They have no children, no other income, and they are claiming the standard deduction.

Spouse 1 Spouse 2 Total Joint
Income      60,000      30,000      90,000      90,000
Standard deduction      (6,100)      (6,100)    (12,200)    (12,200)
Exemptions      (3,900)      (3,900)      (7,800)      (7,800)
Taxable Income      50,000      20,000      70,000      70,000
Tax         8,429         2,554      10,983         9,608

This is a fairly common scenario, and the married taxpayers are already giving up $1,375 if they file separately rather than jointly.  With a larger difference in incomes between spouses, the difference in tax between the two filing statuses could be $10,000 or more.

Although there are times when filing separately will yield a lower tax, the most common reasons to file separately are not tax related.  Couples who are newly married, or couples who have had a rough patch may have filed separate returns because they simply weren’t comfortable with having merged finances.

Fortunately, married couples who have filed separately in recent years may be able to amend those returns and elect to file jointly instead.  Taxpayers can change from married filing separately to married jointly on an amended return filed within three years of the separate returns’ original due-date.  As of this post, tax returns for 2010, 2011, and 2012 may still be amended and, 2009 returns can be amended if the original returns were filed on extension.



IRS Filing Status Tool

Form 1040 (Tax Tables), Tax Table and Tax Rate Schedules

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Income Tax Maine

Maine’s Educational Opportunity Tax Credit

The Educational Opportunity Tax Credit (technically the Job Creation through Educational Opportunity Program) is a Maine state income tax credit that offsets the principle and interest  portions of student loan payments made by qualifying borrowers.  Depending on the student’s debt load, the credit may be worth up to $5,900 per year for up to 10 years.  The actual amount of the credit is based on the in-state tuition at Maine’s community colleges or the University of Maine System, but the students can attend any accredited schools in Maine.  Only loans awarded as part of the student’s financial aid package are eligible – outside loans, such as credit cards, home equity loans, or loans from family members do not qualify.

Who Qualifies

The credit is available to students who earn their associates or bachelor’s degrees in Maine and continue to live and work in the state.  Only loans used to pay for course work after January 2008 are eligible for the credit.  Prior to January 1, 2013, all  of the course work since 2008 had to have been completed at a Maine school.  The law was amended in 2011 to allow individuals to transfer to a Maine school after completing up-to 30 credit hours of work outside of Maine to claim half of the credit if they earned an associates degree or 3/4 of the credit if they earned a bachelor’s degree. 

If an employer makes student loan payments for an employee, the employer is then able to claim the tax credit instead.

How to Claim

The tax credit is claimed by the student or employer by attaching the appropriate worksheet when they file their Maine income tax return.   Keep in mind that not all tax software gets fully updated for every state tax credit, and taxpayers who prepare their own returns will need to be very careful to ensure that they don’t miss the credit or claim it inappropriately.

Policy Consideration

Not everyone agrees that the Educational Opportunity Tax Credit is good tax policy.

  • The tax credit isvery generous but helps very few people.  This means that students who started college in 2008 or later win.  Students who earned their degrees before then lose.  Undergraduate students win, and graduate students lose because the credit is only available for associates and bachelor’s degrees.  The credit is also not available to students who completed any part of their course work outside of Maine since 2008.
  • The tax credit is not well-publicized.  High school students selecting colleges may not be aware of it.  Students who qualify may not be claiming it, which keeps it from serving its purpose.  Some tax professionals may not be aware of it or remembering to ask the right questions to find out if their clients qualify for it.
  • There is a very long lead time between deciding to go to school in Maine and beginning to pay off student loans.  Incentives that have such a long delay are less effective than more immediate incentives, such as tax credits for tuition.
  • The 2011 changes to the law, which took effect in 2013, are not widely known.  As of October 22, 2013, the Opportunity Maine web site and many college web pages about the Educational Opportunity Tax Credit have not been updated for the changes.

Because the credit itself may be considered questionable tax policy, there is a good chance that the credit may some day be repealed.  Therefore, even students who meet the provisions of the credit may not be able to receive it for a full ten years.


More Information About Maine’s Educational Opportunity Tax Credit

Opportunity Maine Website – Note, this site appears to be out-of-date for some of the changes to the law.

Maine Revenue Service – Worksheet for Individuals (2012 version.  2013 is still pending)

Maine Revenue Service – Worksheet for Employers (2012 version, 2013 is still pending)

Maine Revised Statute  – Title 20-A, §12541: Definitions – Maine State Legislature




Income Tax Maine

Maine High Technology Investment Tax Credit

The High Technology Investment Tax Credit is a credit against Maine income tax for the cost (or, if depreciation has been claimed in a different jurisdiction, the remaining basis) of eligible equipment that is placed into service in Maine and used in a “High-technology activity.”  ”High Technology Activities” are defined as  the design, creation, and production of computer software, computer equipment, supporting communications components and other accessories that are directly associated with computer software and computer equipment or the provision of internet access services and advanced telecommunications services.


High Technology Equipment

Computer equipment, electronics components and accessories, communications equipment and computer software all qualify for the credit if more than 50% of their use is for a “high technology activity.”  Leased equipment can also qualify.  Normally, the lessee or sublessee (the end-user of the equipment) claims the credit, but they also have the ability to waive the credit and allow the lessor to claim it instead.

If the credit is claimed by a lessee who deduct the lease payments as they make them, then the credit is available for the amount of the lease payments made each year.  If the taxpayer accounts for the property as a capital lease for tax purposes, then the credit is figured as though they had purchased the equipment.  If the lessor claims the credit,  lease payments received in the year that the equipment is placed in service reduce the cost eligible for the credit.  If a sublessor claims the credit, the lease payments they pay are reduced by the lease payments they receive to determine the amount eligible for the credit.


How to Claim

To claim the tax credit, the taxpayer must complete the High-Technology Investment Tax Credit Worksheet to calculate the amount of the credit.  This worksheet will help the taxpayer to determine the total tax credit available, and how much of that credit is currently available for use.  The total credit available becomes a modification to increase Maine taxable income and the amount available for the current year becomes a dollar-for-dollar reduction in Maine income tax.

There is no time frame specified in Maine’s tax code for when to claim the credit.  Therefore, a taxpayer who failed to claim the credit on his or her original Maine income tax return has up to three years from the date that they timely-filed their original return to amend it and claim a refund, or up to two years from the date that they paid their tax, which ever is later.  The time frame for claiming a refund on an amended return is discussed in a different blog post, and Maine follows the federal law for those time frames.


Limitations on the Credit

The Maine High Technology Investment Tax Credit is subject to certain limitations.  First, it cannot reduce Maine tax liability below zero.  Second, it cannot reduce a taxpayer’s liability to less than the taxpayer’s liability in the preceding year, after accounting for all other tax credits.  Finally, the Maine High Technology Tax Credit cannot reduce Maine tax liability by more than $100,000 in any one year.

Any amount of the tax credit that is available but cannot be claimed due to these limitations can be carried forward for up to five years.



High-Technology Investment Tax Credit Worksheet & Instructions

Maine statute related to the High-Technology Investment Tax Credit

Technology Tax Credit information from the Maine Department of Economic and Commercial Development

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