Massachusetts charges income tax on wages, investment income, and other earnings at a flat rate

Massachusetts state income tax is a tax on money you earn from working, investments, retirement accounts, and other sources. The state charges a flat tax rate of 5.0% on most types of income. This rate applies to everyone in the same way — whether you earn $30,000 or $300,000 per year, you pay the same percentage.

The tax is withheld from your paycheck by your employer if you work as an employee. If you are self-employed, you pay it yourself when you file your state tax return. Massachusetts residents must file a state return if they earned income in the state during the tax year, even if they also live and work in another state.

The state uses the money from income tax to fund schools, roads, public safety, and other services. Your federal income tax and Massachusetts state income tax are separate — you file both returns and pay both taxes.

Key Takeaways

  • Massachusetts charges a flat 5.0% tax rate on wages, investment income, retirement distributions, and most other types of income.
  • Your employer withholds state income tax from your paycheck automatically if you work in Massachusetts or are a resident.
  • You must file a Massachusetts state return if you lived in the state on December 31 of the tax year and had income, even if you also worked out of state.
  • The tax year for Massachusetts follows the same calendar as federal taxes — January 1 through December 31.
  • Some types of income, such as Social Security benefits and certain retirement withdrawals, are not taxed by Massachusetts.

Who has to pay Massachusetts income tax

You must file a Massachusetts state return if you were a resident of the state on December 31 of the tax year and had any income. Residency means you lived in Massachusetts, even if you also worked or owned property in another state. If you moved to or from Massachusetts during the year, you still file a full-year return for that tax year.

Part-year residents — people who moved into or out of Massachusetts during the tax year — also file a Massachusetts return. You report only the income you earned while you were a resident. If you worked in Massachusetts but lived in another state, you may owe tax to both states, though Massachusetts allows a credit for taxes paid to other states to prevent double taxation.

Non-residents who earned income in Massachusetts during the year must also file a state return, even if they did not live there. This includes people who worked in Massachusetts for part of the year or received income from Massachusetts sources like rental property or a business.

What types of income are taxed

Massachusetts taxes wages and salaries from employment at the 5.0% rate. This includes regular pay, bonuses, commissions, and tips. The tax is calculated on your gross income before deductions like health insurance premiums or retirement contributions.

Investment income is also taxed. This includes interest from savings accounts and bonds, dividends from stocks, and capital gains from selling stocks or real estate. Short-term capital gains (from assets held one year or less) are taxed as ordinary income at 5.0%. Long-term capital gains (from assets held more than one year) are also taxed at 5.0% in Massachusetts, unlike the federal system which has lower rates for long-term gains.

Retirement account withdrawals are taxed depending on the type of account. Distributions from traditional IRAs and 401(k)s are taxed as ordinary income at 5.0%. However, Social Security benefits are not taxed by Massachusetts. Distributions from Roth IRAs are also not taxed, since you already paid tax on the money when you contributed it.

Self-employment income is taxed at 5.0% on your net profit after business expenses. Rental income, interest, and income from side work or freelancing are all subject to the state tax.

How withholding works on your paycheck

When you start a job in Massachusetts, your employer asks you to complete a Massachusetts W-4 form (also called the Employee's Withholding Certificate). This form tells your employer how much state income tax to take out of each paycheck. The amount depends on your filing status, the number of dependents you claim, and other income you expect to earn that year.

Your employer sends the withheld tax to the Massachusetts Department of Revenue on your behalf. The amount withheld is credited toward your state tax bill when you file your return. If too much was withheld, you receive a refund. If too little was withheld, you owe the difference when you file.

You can adjust your withholding at any time by submitting a new W-4 form to your employer. This is useful if your income changes, you get married or divorced, or you have a major life change. Many people adjust their withholding in January or after a significant change in circumstances.

Filing your Massachusetts state return

You file your Massachusetts state return using Form 1 (the Massachusetts Resident Income Tax Return) or Form 1-NR/PY (for non-residents or part-year residents). Both forms are available on the Massachusetts Department of Revenue website. You can file by mail or electronically using tax software or a tax professional.

The important date to file is the same as the federal important date — typically April 15 of the year following the tax year. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an extension to file, which gives you until October 15, though any taxes owed are still due by April 15.

When you file, you report all income you earned in Massachusetts during the year, subtract any deductions or credits you are may have access to to, and calculate the tax owed. Your withholding is subtracted from this amount. If you withheld more than you owe, the state refunds the difference. If you withheld less, you pay the remaining balance with your return.

Deductions and credits available in Massachusetts

Massachusetts allows a personal exemption for each taxpayer and dependent. The exemption amount changes each year and is adjusted for inflation. For the 2024 tax year, the personal exemption is $4,400 per person. This amount is subtracted from your income before your tax is calculated.

The state also offers a dependent exemption for each child or dependent you support. This is an additional deduction beyond the personal exemption. You must claim the dependent on your federal return to claim them on your Massachusetts return.

Massachusetts has a Earned Income Tax Credit (EITC) for low-income working people. This credit reduces the amount of tax you owe and can result in a refund if the credit is larger than your tax bill. The credit is based on your earned income and filing status. You must meet income limits to claim it.

Other credits may be available depending on your situation, such as credits for property taxes paid, education expenses, or child care costs. Check the Massachusetts Department of Revenue website or speak with a tax professional to see which credits explore to you.

How to file and where to send your return

You can file your Massachusetts return electronically through the state's online system or through tax software like TurboTax, H&R Block, or TaxAct. Electronic filing is faster and reduces errors. The state processes e-filed returns more quickly than paper returns.

If you file by mail, send your completed return and any supporting documents to the Massachusetts Department of Revenue at the address listed on the form. Keep a copy of your return and all documents you used to prepare it for your records. The state may contact you if it has questions about your return.

If you owe taxes, you can pay online through the Department of Revenue website, by check, or by electronic funds withdrawal. If you are due a refund, the state deposits it directly into your bank account if you provide your account information on your return. Refunds typically arrive within 4 to 8 weeks of filing.

Frequently Asked Questions

Do I have to file a Massachusetts return if I only worked there part of the year?

Yes, if you lived in Massachusetts on December 31 of the tax year, you file a full-year return even if you only worked there for part of the year. If you moved out of Massachusetts before December 31, you file as a part-year resident and report only the income you earned while you were a resident.

What is the difference between the Massachusetts tax rate and the federal tax rate?

Massachusetts charges a flat 5.0% rate on most income. Federal tax uses a progressive system with multiple tax brackets — the rate increases as your income increases, ranging from 10% to 37%. You pay both taxes separately. Your federal withholding and Massachusetts withholding are calculated independently.

Can I claim dependents on my Massachusetts return if I claim them on my federal return?

Yes, you can claim the same dependents on both returns. You must claim them on your federal return first. The dependent exemption on your Massachusetts return reduces your state taxable income by the exemption amount per dependent.

What happens if I move out of Massachusetts during the year?

You file as a part-year resident and report only the income you earned while you lived in Massachusetts. You do not report income earned after you moved out of state. You may also owe income tax to the state you moved to, depending on when you moved and that state's tax laws.

Is there a penalty if I file my Massachusetts return late?

Yes, the state charges penalties and interest if you file late or pay late. The penalty is typically a percentage of the unpaid tax. Interest accrues daily on any unpaid balance. If you cannot file by the important date, you can request an extension, which moves the important date to October 15 but does not eliminate penalties on taxes owed by April 15.