Where two or more people jointly hold a term or time deposit, the $100,000 limitation still applies to the account. The limitation of $100,000 applies separately to each account. (Generally, term and time deposits are deposits where, for a specified period of time, withdrawals cannot be made without incurring a penalty.) Thus, if the principal amount in a term or time deposit equals or exceeds $100,000, the interest earned on the entire amount is included in the taxpayer's Part A income, taxed at 10%. This interest is included in Part B income only if the principal amount of the deposit is less than $100,000. The 5% rate applies regardless of the size of the savings deposit or account.Ĭhapter 62, section 2 also governs the taxation of interest earned on term and time deposits in Massachusetts banks. However, Massachusetts law provides that interest earned on savings deposits or accounts in Massachusetts banks is included in Part B income, taxed at 5%. ISSUE 2: Is the interest earned on the time deposit with a principal amount of $150,000 included in Cooper's Part A or Part B income?ĭISCUSSION: Generally, interest is included in a Massachusetts taxpayer's Part A income, taxed at 10%.

ISSUE 1: Is the interest earned on the savings account with a balance of $150,000 included in Cooper's Part A or Part B income? During the taxable year, Cooper earns interest on both the savings account and the time deposit account. In addition, Cooper has a time deposit account in Money Bank which also has a principal amount of $150,000. FACTS: Taxpayer Cooper has a savings account with a balance of $150,000 in Money Bank, a bank located in Massachusetts.

Tax rate on cd interest