Massachusetts has a state income tax of 5.0 percent on wages and investment income

Yes, Massachusetts charges state income tax. The rate is a flat 5.0 percent on wages, salaries, and most investment income. This means if you earn $50,000 in Massachusetts, you owe the state 5.0 percent of that amount — $2,500 — in addition to federal income tax. The rate has been 5.0 percent since 2002 and applies to all residents and anyone working in the state.

Massachusetts also taxes capital gains, dividends, and interest at the same 5.0 percent rate. If you sell stock or receive investment income, Massachusetts takes its 5.0 percent cut. The state does not have a separate capital gains tax or higher rate for investment income the way some states do.

Key Takeaways

  • Massachusetts state income tax is a flat 5.0 percent on wages and most investment income, with no higher brackets for higher earners.
  • You owe Massachusetts income tax if you live in the state or work there, even if you live across the border in another state.
  • Certain types of income are exempt from Massachusetts tax, including Social Security benefits, some retirement distributions, and long-term capital gains under specific conditions.
  • Massachusetts allows a personal exemption of $4,400 per person (as of 2024), which reduces your taxable income before the 5.0 percent rate is applied.

Who has to pay Massachusetts income tax

You owe Massachusetts income tax if you are a resident of the state or if you work in Massachusetts but live elsewhere. Residency for tax purposes means you lived in Massachusetts for more than half the year or maintained a permanent home there. If you moved to Massachusetts partway through the year, you owe tax on income earned after you became a resident.

If you work in Massachusetts but live in another state, you still owe Massachusetts income tax on wages earned in the state. You may also owe income tax to your home state, depending on where you live. Some states have reciprocal agreements that prevent double taxation, but Massachusetts does not have these agreements with most neighboring states. You would need to file in both states and claim a credit on one return for taxes paid to the other.

What income is taxed and what is exempt

Massachusetts taxes wages, salaries, bonuses, and tips at the 5.0 percent rate. It also taxes interest, dividends, and capital gains the same way. Rental income, business income, and income from self-employment are all subject to the 5.0 percent state tax (though self-employment income also owes federal self-employment tax).

Some types of income are exempt from Massachusetts tax. Social Security benefits are not taxed by the state. Certain retirement distributions, including distributions from IRAs and 401(k) plans, are exempt if you are over 59½ years old. Long-term capital gains — profits from selling assets you held for more than one year — received a partial exemption starting in 2024, though the details depend on your income level and the type of asset. Gifts and inheritances are not taxed as income. Unemployment benefits are taxable in Massachusetts.

How the personal exemption reduces what you owe

Massachusetts allows a personal exemption that lowers your taxable income before the 5.0 percent rate is applied. For the 2024 tax year, the exemption is $4,400 per person. If you are married filing jointly, you get two exemptions — one for you and one for your spouse — for a total of $8,800. Dependents do not get their own exemptions; instead, you claim them as dependents on your return.

The exemption works like this: if you earned $50,000 in wages, you subtract $4,400, leaving $45,600 in taxable income. You then owe 5.0 percent of $45,600, which is $2,280. Without the exemption, you would owe 5.0 percent of $50,000, or $2,500. The exemption saves you $220 in this example. The exemption amount increases slightly most years to account for inflation.

Filing and payment important date in Massachusetts

Massachusetts uses the same filing important date as the federal government: 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 file your Massachusetts return using Form 1 (the resident income tax return) or Form 1-NR/PY if you are a nonresident or part-year resident.

If you owe taxes, you must pay by April 15 as well. If you cannot pay in full, you can set up a payment plan with the Massachusetts Department of Revenue. If you expect a refund, filing earlier means you receive your refund sooner. Massachusetts typically processes refunds within four to six weeks of receiving your return, though this varies depending on how you file and whether the return requires review.

How to file your Massachusetts return

You can file your Massachusetts return on paper or electronically. The state offers free tax software through its website for residents whose income is below a certain threshold (usually around $73,000). You read the software, enter your information, and file directly with the state. If your income is above that threshold or you prefer professional help, you can use a tax preparer or commercial tax software that supports Massachusetts returns.

When you file, you will need your Social Security number, W-2 forms from your employers, 1099 forms for any other income (interest, dividends, self-employment), and documentation of any deductions or credits you claim. If you are filing as a nonresident or part-year resident, you also need to show how much of your income came from Massachusetts sources versus out-of-state sources. The state's website has worksheets and instructions to help you calculate this.

Deductions and credits available in Massachusetts

Massachusetts allows a standard deduction in addition to the personal exemption. For 2024, the standard deduction is $8,100 for single filers and $16,200 for married couples filing jointly. You can use either the standard deduction or itemize deductions if itemizing gives you a larger deduction. Most people use the standard deduction because it is simpler and often larger than itemized deductions.

The state also offers tax credits for certain situations. The Earned Income Tax Credit (EITC) is available to low-income workers and is worth up to several hundred dollars depending on your income and family size. Massachusetts has a child and dependent care credit, a credit for property taxes paid, and credits for certain education expenses. You claim these credits on your return to reduce the amount of tax you owe.

Frequently Asked Questions

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

Yes, if you earned income in Massachusetts during any part of the year, you must file a Massachusetts return. You file as a part-year resident and report only the income you earned while living in the state. You will use Form 1-NR/PY to show the dates you were a resident and calculate your tax accordingly.

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

You owe Massachusetts income tax only on income earned before you moved out of the state. You file as a part-year resident and report your move date on your return. After that date, you owe tax only to your new state of residence (if it has an income tax). Keep documentation of your move — a lease, utility bill, or driver's license change — to support your filing.

Can I deduct federal income tax paid from my Massachusetts return?

No, Massachusetts does not allow you to deduct federal income tax paid. You can deduct state and local property taxes and sales taxes (you choose one or the other), but not federal income tax. This is a common source of confusion because some states do allow this deduction.

Is there a penalty if I file late or pay late?

Yes. If you file after April 15 without an extension, you face a failure-to-file penalty. If you pay after April 15, you owe interest on the unpaid amount plus a failure-to-pay penalty. You can request an extension by filing Form 4868 before April 15, which gives you until October 15 to file. An extension to file is not an extension to pay — you still owe the tax by April 15 to avoid penalties.

Do I owe Massachusetts tax on income from out-of-state sources?

If you are a Massachusetts resident, you owe tax on all income from all sources, including out-of-state income. If you are a nonresident, you owe tax only on income earned in Massachusetts. This is why nonresidents must carefully track which income came from Massachusetts work and which came from elsewhere.