At a Glance
Massachusetts lawmakers are considering legislation that could change how—and when—certain federal tax benefits under the One Big Beautiful Bill Act (OBBBA) apply at the state level. Governor Healey’s proposed House Bill 4975 (HB 4975) would temporarily delay Massachusetts’s conformity to select federal tax changes, including provisions that many businesses expected to benefit from beginning in 2025. The proposal would not only defer certain deductions, but also delay retroactive application of key provisions such as IRC § 174A for Massachusetts purposes. For business owners, financial decision makers, and taxpayers, this proposal is less about state tax policy mechanics and more about cash flow, timing of deductions, estimated tax payments, and planning uncertainty. If enacted, the bill could result in higher Massachusetts taxable income in the near term, even where federal tax law allows more favorable treatment.
Contents
- Background
- HB 4975 and Delayed Conformity
- R&E Deductions Under IRC § 174A
- Why the State Is Proposing This Delay
- How Massachusetts Compares to Maine and New Hampshire
- What Businesses and Taxpayers Should Do Now
- Looking Ahead
Background
In December 2025, ARB highlighted how Maine, Massachusetts, and New Hampshire differ in their conformity to the federal OBBBA—underscoring a key point for taxpayers: federal tax changes do not automatically result in state tax savings. State conformity determines whether federal deductions, credits, and income adjustments are recognized for state tax purposes. Differences in conformity can create unexpected liabilities even when federal taxes decline.
Massachusetts generally follows rolling conformity for corporate excise taxes, allowing many federal changes to apply automatically, but relies on a static Internal Revenue Code reference for individual income taxes, meaning many federal benefits do not flow through without legislative action. This framework sets the stage for HB 4975 and explains why the proposed delay in conformity is especially relevant for businesses and taxpayers that expected OBBBA provisions to reduce their Massachusetts tax liability.
HB 4975 and Delayed Conformity
On January 15, 2026, Governor Maura Healey introduced HB 4975, which would temporarily modify Massachusetts’s rolling conformity to certain OBBBA provisions. Rather than fully adopting these federal changes immediately, the state would delay conformity for a limited period, estimated at approximately two years.
For taxpayers, this means that federal tax benefits may be available on federal returns but unavailable—or deferred—on Massachusetts returns, creating timing differences and potentially higher state tax payments in the short term.
R&E Deductions Under IRC § 174A
One of the most consequential aspects of HB 4975 for businesses involves the treatment of research and experimental (R&E) expenditures under IRC § 174A. Under the OBBBA, businesses may fully expense qualifying domestic R&E costs for federal purposes beginning in 2025, and certain small taxpayers may also apply the change retroactively by amending prior returns. Many companies—particularly in technology, life sciences, and manufacturing—have incorporated this change into their tax forecasts and cash-flow planning.
HB 4975 would delay Massachusetts conformity to § 174A more broadly, disallowing both immediate expensing and the retroactive application of § 174A for Massachusetts purposes for tax years beginning in 2025. This means that small taxpayers would also be unable to amend Massachusetts returns to reflect federal § 174A changes during the delay period. As a result, affected taxpayers could face higher Massachusetts taxable income, increased estimated tax payments, and additional federal-state timing differences. Although the proposal allows conformity to take effect for payments in tax year 2026, the interim impact could be significant for businesses with substantial R&E spending.
Why the State Is Proposing This Delay
From the Commonwealth’s perspective, the proposal is about budget stability and revenue forecasting. By delaying high-impact federal changes, Massachusetts can better assess their fiscal effect before fully conforming. For taxpayers, however, the motivation matters less than the outcome. Delayed conformity means:
- Short-term increases in state tax liability
- Additional complexity in compliance and reporting
- The need to revisit tax projections made under the assumption of full conformity
Understanding the rationale helps explain the proposal, but it does not reduce the importance of proactive planning.
How Massachusetts Compares to Maine and New Hampshire
This proposal places Massachusetts between its neighbors:
- Maine continues to evaluate partial conformity, potentially leading to a patchwork approach for depreciation and R&D-related provisions.
- New Hampshire remains largely decoupled due to its reliance on an older IRC reference, meaning most OBBBA changes do not apply.
For businesses operating across state lines, these differences reinforce the need for state-specific tax modeling, rather than relying solely on federal outcomes.
What Businesses and Taxpayers Should Do Now
While HB 4975 is still under consideration, affected taxpayers should begin preparing now by:
- Monitoring legislative developments closely
- Reviewing how delayed conformity could affect 2025 and 2026 Massachusetts tax liabilities
- Identifying federal–state timing differences that may impact cash flow
- Coordinating with tax advisors to adjust estimated payments, financial statements, and planning strategies
Early analysis can help avoid surprises once the law is finalized.
Looking Ahead
Massachusetts’s proposed delay in conforming to certain OBBBA provisions underscores a broader trend: state tax outcomes increasingly diverge from federal results, even when federal changes are designed to provide immediate relief or incentives. For business owners, financial leaders, and taxpayers, staying informed and proactive is essential. If you have Massachusetts filing obligations or R&E-related tax exposure, now is the time to reassess your assumptions and planning strategies. For guidance tailored to your specific situation, contact a qualified tax professional to discuss how evolving Massachusetts conformity rules may affect your business or personal tax position.
Nick Lagoditz is a Tax Manager with ARB who provides tax services to construction, manufacturing, and ESOP-owned entities. Working closely with clients, he helps to improve their financial reporting and support their business goals.
