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

Massachusetts state income tax is a tax on money you earn from working, investments, and certain other sources. The state charges a flat rate of 5.0 percent on most types of income. This means whether you earn $30,000 or $300,000 per year, the tax rate stays the same — it does not go up as your income rises, the way federal income tax does.

The tax applies to residents and people who work in Massachusetts, even if they live elsewhere. If you work in Massachusetts but live in another state, you may owe Massachusetts tax on that income. The state also taxes income from retirement accounts, capital gains, and dividends, though some types of income are taxed at different rates or are exempt entirely.

Massachusetts does not have a sales tax on groceries, clothing under $175 per item, or prescription drugs. The state does charge a 6.25 percent sales tax on most other goods and services. Property tax is set by individual towns and cities, not by the state, so the amount you pay depends on where you live.

Key Takeaways

  • Massachusetts taxes income at a flat rate of 5.0 percent on wages, investment income, and most other earnings.
  • The tax applies to Massachusetts residents and anyone who works in the state, regardless of where they live.
  • Certain types of income, including long-term capital gains and some retirement withdrawals, are taxed at lower rates or not at all.
  • Your employer withholds Massachusetts tax from your paycheck based on a W-4 form you fill out; you settle the actual amount owed when you file your return.

Who pays Massachusetts income tax

You owe Massachusetts income tax if you are a resident of the state or if you earned income while working in Massachusetts. Residency is determined by where you live for most of the year. If you moved to Massachusetts partway through the year, you file as a part-year resident and pay tax only on income earned after you arrived.

Non-residents who work in Massachusetts owe tax only on income earned in the state. If you live in New Hampshire or Rhode Island and work in Massachusetts, you file a Massachusetts return on that work income even though your home state may not tax income. Some states have reciprocal agreements that reduce or eliminate this tax, but Massachusetts does not participate in reciprocity agreements.

Military members stationed in Massachusetts and their spouses may be exempt from state income tax on military pay, depending on their home state. If you are unsure whether you are required to file, the Massachusetts Department of Revenue website lists the filing requirements based on your income level and filing status.

What income is taxed at the standard 5.0 percent rate

Wages from employment, self-employment income, interest, and ordinary dividends are all taxed at the standard 5.0 percent rate. If you receive a W-2 from an employer, that income is taxed at 5.0 percent. If you are self-employed and file a Schedule C, your net profit is also taxed at 5.0 percent.

Income from rental properties, retirement account withdrawals (with some exceptions), and distributions from trusts are taxed at 5.0 percent. Gambling winnings are taxed at 5.0 percent. Unemployment benefits are not taxed by Massachusetts, though they are taxed by the federal government.

Social Security benefits are not taxed by Massachusetts. Pension income from a Massachusetts public employee retirement system is not taxed. If you receive a pension from a non-Massachusetts public employee system, it may be taxable depending on when you earned it and your age.

Income taxed at different rates or exempt from tax

Long-term capital gains — profit from selling stocks, real estate, or other assets you held for more than one year — are taxed at 5.0 percent on the federal level, but Massachusetts taxes them at 5.0 percent as well. Short-term capital gains (assets held one year or less) are taxed at the standard 5.0 percent rate.

Certain types of income are not taxed by Massachusetts at all. These include gifts, inheritances, life insurance proceeds, and reimbursements for medical expenses. Scholarships used for tuition and required fees are not taxed. If you receive a scholarship that covers room and board, that portion may be taxable.

Income from Massachusetts municipal bonds is not taxed by the state. If you own bonds issued by another state, Massachusetts taxes the interest. Certain retirement savings, such as contributions to a traditional IRA or 401(k), reduce your taxable income in the year you make them, though withdrawals are taxed later.

How withholding works and what happens at tax time

Your employer withholds Massachusetts income tax from your paycheck based on the information you provide on a Massachusetts W-4 form. This is separate from the federal W-4. The amount withheld depends on your filing status, the number of dependents you claim, and any additional withholding you request.

Throughout the year, your employer sends the withheld tax to the state on your behalf. When you file your state income tax return, usually between January and April, you report all your income and calculate the total tax you owe. If you withheld more than you owe, you receive a refund. If you withheld less, you owe the difference.

If you are self-employed or have income that is not subject to withholding, you may need to make quarterly estimated tax payments to Massachusetts. These are due on April 15, June 15, September 15, and January 15. If you do not pay enough throughout the year, you may owe a penalty when you file your return.

Filing your Massachusetts tax return

Most people file their Massachusetts return using Form 1, the Massachusetts Resident Income Tax Return, or Form 1-NR/PY if they are a non-resident or part-year resident. You can file on paper by mailing the form to the Massachusetts Department of Revenue, or you can file electronically through the state's online system or through tax software.

The important date to file is typically April 15, the same as the federal important date. 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, but any tax you owe is still due by April 15 or you will owe interest and penalties.

You need your W-2 forms from employers, 1099 forms for other income, and records of deductions or credits you plan to claim. If you have dependents, you need their Social Security numbers. Keep receipts and documentation for at least three years in case the state audits your return.

Deductions and credits that reduce what you owe

Massachusetts allows a standard deduction based on your filing status. For the 2024 tax year, the standard deduction is $4,400 for single filers and $8,800 for married couples filing jointly. You can choose to itemize deductions instead if your total deductible expenses are higher than the standard deduction.

You can deduct mortgage interest, property taxes (up to $10,000 combined with federal deductions), charitable contributions, and certain medical expenses. Student loan interest paid during the year may be deductible. Dependent exemptions are not allowed under Massachusetts law, though you may be able to claim a credit for dependent care expenses.

Massachusetts offers a Earned Income Tax Credit for low-income workers, which reduces the amount of tax you owe or increases your refund. The amount depends on your income and filing status. If you are over 65 or disabled, you may may have access to for an additional credit. Check the Department of Revenue website to see if you meet the income limits.

Frequently Asked Questions

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

Yes, if you earned income while living in Massachusetts, you file as a part-year resident. You report all income earned while you were a resident and only Massachusetts-source income earned before you moved. Your standard deduction is reduced based on the number of months you were a resident.

What happens if I do not pay my Massachusetts taxes?

The state charges interest on unpaid tax at a rate set quarterly, currently around 8 percent per year. If you do not file a return when required, you also owe a failure-to-file penalty. The state can place a lien on your property, garnish your wages, or intercept your federal refund to collect what you owe.

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

No, Massachusetts does not allow you to deduct federal income tax. You can deduct state and local property taxes, but the combined deduction for property tax and sales tax cannot exceed $10,000 when combined with your federal deduction.

Is there a tax on retirement income in Massachusetts?

Pension income from a Massachusetts public employee retirement system is not taxed. Social Security is not taxed. Withdrawals from traditional IRAs and 401(k)s are taxed at 5.0 percent. Roth IRA withdrawals are not taxed if the account has been open for at least five years.

What if I owe more tax than I can pay right now?

Contact the Massachusetts Department of Revenue to set up a payment plan. You can pay in installments, though interest and penalties continue to accrue. The state may also offer an offer in compromise if you cannot pay the full amount, though this is rare and requires proof of financial hardship.