Massachusetts charges a flat 5% income tax on most wages and investment income

Massachusetts state income tax is a single tax rate applied to your wages, interest, dividends, and other income. Unlike the federal system, which uses tax brackets that increase with income, Massachusetts uses one rate: 5% for most people. This means whether you earn $30,000 or $300,000 per year, the state takes the same percentage.

The tax applies to income earned while you live or work in Massachusetts, even if you live in another state. If you work in Massachusetts but live elsewhere, you may owe Massachusetts tax on that income. The state also taxes income from Massachusetts sources — rental property, business income, or investment gains tied to the state — regardless of where you live.

You do not pay Massachusetts income tax on Social Security benefits, and certain retirement income has special treatment. Military pensions and some other government pensions are exempt. Interest and dividends are taxed at the same 5% rate as wages.

Key Takeaways

  • Massachusetts taxes income at a flat 5% rate, with no brackets that increase based on how much you earn.
  • The tax covers wages, self-employment income, interest, dividends, and capital gains from the sale of stocks or property.
  • Social Security benefits are not taxed by Massachusetts, and certain military and government pensions are exempt.
  • If you work in Massachusetts but live elsewhere, you typically owe Massachusetts tax on wages earned in the state.
  • You file Massachusetts taxes using Form 1, the state's basic income tax return, usually at the same time you file federal taxes.

Who has to file a Massachusetts tax return

You must file a Massachusetts return if you lived in the state for any part of the tax year and your income exceeds the filing threshold. For 2024, that threshold is $15,000 for single filers and $30,000 for married couples filing jointly. If your income falls below that amount, you do not have to file — though you may want to if taxes were withheld from your paychecks, because filing lets you get a refund.

Part-year residents — people who moved into or out of Massachusetts during the year — must file if their income exceeds the threshold for the months they lived there. If you worked in Massachusetts but lived elsewhere, you file a nonresident return and report only the income earned in the state.

If you are claimed as a dependent on someone else's return, the filing threshold is lower. The Massachusetts Department of Revenue publishes updated thresholds each year on its website.

What income is taxed and what is not

Taxable income includes W-2 wages from your job, self-employment income if you run a business, interest from savings accounts and bonds, dividends from stocks, and capital gains when you sell investments or real estate at a profit. Rental income is also taxed. All of these are subject to the 5% rate.

Income that is not taxed by Massachusetts includes Social Security retirement benefits, Supplemental Security Income (SSI), certain military pensions, and some government employee pensions. Gifts and inheritances are not taxed. Unemployment benefits are taxed by Massachusetts, unlike in some other states.

If you sell your primary home, the gain is not taxed. If you sell investment property or a second home, the gain is taxed as capital gains at the 5% rate. Long-term capital gains (assets held more than one year) are taxed the same as short-term gains in Massachusetts, unlike the federal system.

How withholding and estimated taxes work

If you receive a W-2 paycheck, your employer withholds Massachusetts income tax automatically. You fill out a Form M-4 when you start the job to tell your employer how much to withhold. If you do not fill one out, your employer withholds at the standard rate, which may be more than you owe — meaning you get a refund when you file.

If you are self-employed or have income with no withholding — such as rental income or investment gains — you may need to pay estimated taxes four times per year. These are payments made directly to the state in April, June, September, and January. If you expect to owe more than $400 in state tax and no withholding is happening, the state recommends making estimated payments to avoid penalties.

You can adjust your withholding at any time by submitting a new Form M-4 to your employer. If you are over-withheld, you get the money back as a refund when you file your return.

Filing your Massachusetts return and getting a refund

You file Massachusetts taxes using Form 1, the state's basic income tax return. You can file by mail, by phone through the TeleFile system, or online through the state's website. Most people file at the same time they file their federal return, usually between January and April 15.

If you use tax software like TurboTax or H&R Block, Massachusetts is included in most packages. If you file for free, the Massachusetts Department of Revenue lists free software options on its website. You can also file by paper form, which you mail to the address listed on the form.

If you overpaid taxes through withholding or estimated payments, you receive a refund. The state processes refunds within four to six weeks if you file electronically, or longer if you mail a paper return. You can check the status of your refund on the Department of Revenue website using your Social Security number and the amount you expect to receive.

Deductions and credits available in Massachusetts

Massachusetts allows a personal exemption of $4,400 per person (as of 2024, though this amount changes yearly). This reduces your taxable income before the 5% tax is applied. If you are married filing jointly, you get two exemptions. Dependents also get exemptions.

The state offers a Earned Income Tax Credit (EITC) for low-income workers. This is a refundable credit, meaning if the credit is larger than your tax bill, you get the difference as a refund. You must have earned income to claim it. The credit phases out as income rises.

Massachusetts also allows deductions for property taxes and certain charitable contributions, though these are less generous than the federal deduction. You can claim the standard deduction or itemize, just as you do on your federal return.

Tax rates for different types of income

Most income in Massachusetts is taxed at the flat 5% rate. This includes wages, self-employment income, interest, dividends, and capital gains. There are no separate brackets or higher rates for higher earners.

The one exception is long-term capital gains on the sale of certain assets. Massachusetts taxes these at 5%, the same as other income. Some states tax capital gains at a lower rate or have special treatment for certain investments, but Massachusetts does not.

Retirement account withdrawals — from a 401(k), IRA, or pension — are taxed as ordinary income at 5%. If you withdraw before age 59½, you may owe federal penalties, but Massachusetts does not add its own early-withdrawal penalty.

Frequently Asked Questions

Do I owe Massachusetts tax if I work there but live in another state?

Yes, you owe Massachusetts tax on wages earned in the state. You file a nonresident return and report only the income from your Massachusetts job. Some states offer a credit for taxes paid to another state, so check your home state's rules to avoid double taxation.

What happens if I do not file a Massachusetts return when I should have?

The state may assess penalties and interest on unpaid taxes. If you owe a refund, there is no penalty for filing late, but you lose the refund if you do not file within three years. If you missed a important date, contact the Department of Revenue or file as soon as you can.

Can I deduct federal income taxes from my Massachusetts return?

No. Massachusetts does not allow a deduction for federal income taxes paid. You can deduct state and local property taxes up to $10,000 if you itemize, but not federal income tax.

Is unemployment income taxed in Massachusetts?

Yes. Unlike some states, Massachusetts taxes unemployment benefits as ordinary income at the 5% rate. The amount is reported on a 1099-G form, and you include it on your state return.

How do I know if I am a resident or nonresident for tax purposes?

You are a Massachusetts resident if you lived in the state for the entire tax year. If you moved in or out during the year, you are a part-year resident and file accordingly. Nonresidents are people who worked in Massachusetts but lived elsewhere. The Department of Revenue website has a residency worksheet to help you determine your status.