Massachusetts income tax is a flat 5% on most income

Massachusetts charges a single income tax rate of 5% on wages, salaries, and most other income. This flat rate applies to nearly all residents and has remained at 5% since 2002. Unlike federal income tax, which uses brackets that increase with income, Massachusetts does not tax higher earners at a higher percentage — everyone pays the same 5%.

The 5% rate applies to your federal adjusted gross income, which is your total income minus certain deductions. Massachusetts then allows you to subtract a personal exemption before calculating what you owe. For the 2024 tax year, the personal exemption is $4,400 for single filers and $8,800 for married couples filing jointly.

Some types of income are taxed at different rates or not taxed at all. Long-term capital gains and dividends are taxed at 5%, but short-term capital gains follow the regular 5% rate. Interest income is also taxed at 5%. Certain retirement income, including Social Security benefits and some pension income, may be partially or fully exempt depending on your age and total income.

Key Takeaways

  • Massachusetts taxes most income at a flat rate of 5%, with no higher brackets for higher earners.
  • You subtract a personal exemption ($4,400 for single filers in 2024) before the 5% tax is calculated.
  • Social Security benefits are not taxed in Massachusetts, and some pension income may be exempt if you are over 62.
  • Capital gains, dividends, and interest income are all taxed at the same 5% rate as wages.
  • Your employer withholds tax from your paycheck based on a W-4 form you complete, but you may owe more or receive a refund when you file your return.

How withholding works on your paycheck

Your employer withholds Massachusetts income tax from each paycheck based on the W-4 form you fill out when you start the job. The withholding is meant to cover your annual tax liability so you do not owe a large amount when you file your return in April. The amount withheld depends on your filing status, the number of dependents you claim, and any extra withholding you request.

If you do not withhold enough during the year, you will owe money when you file. If you withhold too much, you will receive a refund. You can adjust your withholding at any time by submitting a new W-4 to your employer. Many people adjust their withholding if they have a major life change — a marriage, a second job, or a child — or if they received a large refund or owed a large amount the previous year.

Self-employed and business income

If you are self-employed or own a business, you still owe the 5% Massachusetts income tax on your net business income. You calculate net income by subtracting your business expenses from your gross revenue. You must file a Massachusetts Schedule C (Profit or Loss from Business) along with your state return.

Self-employed people also owe federal self-employment tax, which funds Social Security and Medicare. Massachusetts does not have a separate self-employment tax, but you do need to pay estimated taxes quarterly if you expect to owe more than $400 in federal tax for the year. Many self-employed people pay estimated taxes to both the federal government and Massachusetts at the same time.

Income that is not taxed in Massachusetts

Social Security benefits are completely exempt from Massachusetts income tax, even if they are your only income. This is one of the most significant tax breaks available to retirees in the state. Pension income is also exempt if you are age 62 or older, regardless of the amount. If you are under 62, pension income is taxed at the regular 5% rate.

Military pay earned while on active duty is exempt from Massachusetts tax. Certain types of investment income, such as gains from the sale of your primary residence (up to $250,000 for single filers), are also exempt under federal law and therefore not taxed by Massachusetts. Some municipal bond interest is exempt from both federal and state tax.

Filing your Massachusetts return

You file your Massachusetts return using Form 1 (Massachusetts Resident Income Tax Return) or Form 1-NR/PY if you are a nonresident or part-year resident. The important date is the same as the federal important date, usually April 15. You can file online through the Massachusetts Department of Revenue website, by mail, or through a tax preparer.

When you file, you report your income from all sources, claim your personal exemption, and calculate your tax. You then subtract any tax already withheld by your employer and any estimated taxes you paid during the year. If the total withheld and paid exceeds your tax, you receive a refund. If your tax exceeds what you paid, you owe the difference.

The Massachusetts Department of Revenue offers free tax preparation information through the Volunteer Income Tax information (VITA) program if your household income is below a certain threshold. You can find a VITA site near you on the state revenue website.

Nonresidents and part-year residents

If you lived in Massachusetts for only part of the year, you file as a part-year resident and pay tax only on income earned while you were a resident. If you worked in Massachusetts but lived in another state, you may owe Massachusetts tax on income earned in the state, depending on your residency status and the tax laws of your home state.

Some states have reciprocal agreements with Massachusetts that prevent you from being taxed by both states on the same income. If you worked in Massachusetts and lived in Connecticut, New Hampshire, Rhode Island, or Vermont, you may be exempt from Massachusetts tax. You should check with both your home state and Massachusetts to understand your filing obligations.

Frequently Asked Questions

Do I have to file a Massachusetts return if I live out of state?

You must file if you earned income in Massachusetts during the year, even if you lived elsewhere. However, some states have reciprocal agreements that exempt you from Massachusetts tax. Check the Massachusetts Department of Revenue website or contact them directly to confirm your filing requirement based on where you lived and worked.

Is Social Security taxed in Massachusetts?

No. Social Security benefits are completely exempt from Massachusetts income tax. This exemption applies regardless of how much other income you have or your total household income. You do not need to report Social Security on your state return.

What if I owe more than I can pay?

Contact the Massachusetts Department of Revenue to discuss a payment plan. The state offers installment agreements for taxpayers who cannot pay in full. You can also request an extension to file your return, though taxes are still due by the original important date to avoid penalties and interest.

Can I deduct property taxes or mortgage interest on my Massachusetts return?

Massachusetts does not allow deductions for property taxes or mortgage interest on the state return. You can only claim the personal exemption. If you itemize deductions on your federal return, those deductions do not carry over to your state return.

What happens if I do not file or pay on time?

The state charges penalties and interest on unpaid taxes. The failure-to-file penalty is typically 5% per month, and the failure-to-pay penalty is 0.5% per month. Interest accrues daily at a rate set by the state. Filing late or paying late can significantly increase what you owe.