Massachusetts State Taxes
Massachusetts State Tax ― Personal Income Tax
The Massachusetts personal income tax applies to the income of individuals who are employed and/or living in the state, and it is generally withheld by employers from their employees’ paychecks. This tax also applies to the income of estates, trusts, and corporate trusts (including partnerships and associations with transferrable shares).
In general, Massachusetts personal income tax is imposed at a flat rate of 5.3% on all levels of earned income. Although the rate is flat, this tax is considered “progressive” because of provisions (i.e. tax expenditures) that reduce/eliminate taxes for many lower-income individuals.
The 5.3% state tax rate applies to the following types of taxable income:
- Massachusetts gross income
- Interest and dividends
- Interest from savings deposits in Massachusetts banks
- Interest from loans made by pawn brokers
- Most long-term capital gains
Massachusetts also has an income tax rate of 12% that applies to certain types of capital gains, including the following:
- Current year short-term capital gains (including collectibles)
- Gains on the sale of property used in a trade or business (4797 property) held for one year or less
- Long-term capital gains from collectibles
- Long-term capital gains from pre-1966 installment sales
In general, individuals are required to file a Massachusetts state income tax return if their Massachusetts gross income exceeds $8,000 for the taxable year. This applies to full-year residents and part-year residents, even if zero tax is actually owed. (For part-year residents, Massachusetts gross income refers to the income that was earned during the period of residency.) Additionally, any individuals who are entitled to a tax refund must file a return to receive a refund, even if they are not required to file.
To determine an individual’s Massachusetts taxable income, you must start with his/her Federal gross income. (This means that the Federal income tax return should be completed before beginning the Massachusetts tax return.) Certain income additions and subtractions are applied to Federal gross income to arrive at Massachusetts gross income. At that point, the Massachusetts gross income is split into three parts ― Part A, Part B, and Part C ― and each part is further modified to reach Massachusetts adjusted gross income (AGI). Lastly, each part is adjusted by Massachusetts exemptions/deductions to arrive at Massachusetts taxable income. An individual’s taxable income is multiplied by the tax rate to arrive at the amount of income tax due.
You must indicate your filing status on your Massachusetts income tax return by filling in the appropriate oval. Massachusetts recognizes 5 filing statuses: single, married filing jointly, married filing separately, head of household, and same-sex joint filers.
- Joint filers are treated as a single taxpayer for filing requirement purposes. A couple who files a joint tax return must combine their income to determine their filing requirement.
- Separate filers, on the other hand, must keep their incomes apart and each spouse must determine his/her own filing requirement.
Massachusetts personal income tax returns are due by April 15th following the close of each tax year.
If you cannot file your tax return by the due date, you may request an automatic 6-month extension of time to file. This is an extension for time only, not for payment. At least 80% of the tax due must be paid by the original due date or penalties will apply. To apply for an extension, submit Form M-4868 (Application for Automatic Six-Month Extension of Time to File Massachusetts Income Tax Return) to the Department of Revenue.
Individuals who expect their tax to exceed $400 (on taxable income not subject to withholding) must make declarations of estimated tax and pay their tax in 4 equal installments. The first installment payment is due by April 15th, the second is due by June 15th, the third is due by September 15th, and the final payment is due by January 15th of the following tax year. Estimated taxes can be paid using Form 1-ES (Estimated Tax Payment Vouchers).
Massachusetts State Tax ― Corporate Excise Tax
In 1919, Massachusetts levied its first tax on corporate income and today it is known as the Corporate Excise Tax. In addition to this tax, businesses may also be liable for property taxes, sales/use taxes, and withholding taxes.
The corporate excise tax is administered by the Massachusetts Department of Revenue (DOR). All domestic and foreign corporations are subject to taxation unless specifically exempted by law. While most corporations are taxed at one flat rate, certain types of businesses have alternate rates based on the way they are organized.
In general, the corporate excise tax is based on two factors:
- Net income ― based on a corporation’s federal gross income, with certain Massachusetts modifications (additions and subtractions)
- Tangible property or net worth ― includes real property (i.e. real estate) and personal property (i.e. moveable property, such as furniture and supplies)
Massachusetts imposes a flat tax rate of 8.75% on net income. Corporations are also taxed $2.60 per $1,000 of value of Massachusetts tangible property or net worth allocable to Massachusetts. The minimum tax a corporation can pay is $456.
Corporate excise returns, with full payment of tax due, must be filed by the 15th day of the 3rd month following the close of the corporation’s taxable year.
Massachusetts State Tax ― Sales & Use Tax
Massachusetts first adopted a general sales tax in 1966. Today there are 2 parts to this tax: the sales tax and the use tax. The sales tax is the main component and it is imposed on the retail sales of goods/services in Massachusetts. The use tax, on the other hand, is imposed in the absence of the sales tax ― or when the appropriate amount of Massachusetts sales tax has not been collected.
The “sales tax” has a rate of 6.25% on the sale, use, storage, and rental of tangible personal property, unless specifically exempted by law. Tax is normally collected from the consumer by the vendor and imposed at the time of sale. It is based on the “destination principle,” meaning that items are taxed according to their destination ― items exported from Massachusetts are exempt from tax, but items imported to Massachusetts are subject to the sales/use tax.
The “use tax” is imposed in lieu of the sales tax, when none (or less than the proper amount) of the Massachusetts sales tax has been paid. It has the same rate of 6.25% and often applies to out-of-state, mail order catalogue and Internet purchases. The use tax is the personal responsibility of the consumer. It is paid directly to the Department of Revenue by the user/consumer of the item (unlike the sales tax which is collected by vendors). It may be paid on an annual basis, or more frequently if desired.
The sales /use tax is an “in rem” tax, meaning that it is levied on the property or service that is sold or used. It is a relatively stable and predictable tax, due to its set rate and the fact that purchasing activity does not tend to decline as rapidly as incomes. It is also considered ”regressive” because of its flat rate ― this means that higher income households typically have a lower sales tax burden because less of their income is spent on paying the tax. However, numerous exemptions (i.e. tax-free items) are in place to help offset this regressive quality.
Massachusetts State Tax ― Property Tax
Property tax is a local tax. It is calculated by multiplying a property’s assessed value by the tax rate of the applicable city/town. Municipal governments are responsible for determining property values, setting tax rates, and collecting taxes for properties located in their jurisdiction. Local assessors must maintain up-to-date assessments as the value of property can change over time. Tax rates vary across jurisdictions, although property tax limits are enforced to help ensure fairness.
This property tax limitation measure was approved by Massachusetts voters in 1980. It restricts rates as well as increases in the property tax levies of local governments. The major components of Proposition 2½ include the following:
- Levy Ceiling ― the total tax levy cannot exceed 2.5% of the fair cash value of all taxable property
- Levy Limit ― annual increases cannot exceed 2.5% of the previous year’s limit, plus an adjustment for new growth and any voter-approved overrides; the levy limit must always be lower than the levy ceiling
- Debt Exclusions ― voter-approved exclusions (e.g., certain capital projects and specified debt service costs) can result in temporary increases over the levy limit and/or the levy ceiling
All property is assessed based on its fair market value. There are two major types of property: real property and personal property. Real property generally refers to real estate, including land and anything built, growing or installed on that land. Personal property generally refers to property that is not real estate.
Local assessors divide property into 10 major classifications, organized according to use:
- Open Space
- Personal Property
- Forest Property
- Recreational Property
- Exempt Property
If a taxpayer wishes to contest the valuation or tax on property, he/she must file an abatement using State Tax Form 128 (Application for Abatement of Real/Personal Property Tax) before the first tax payment due date.
Massachusetts State Tax Forms
Form 1 (Massachusetts Resident Income Tax Return)
Form 1-NR/PY (Massachusetts Nonresident/Part-Year Resident Tax Return)
Schedule HC (Health Care Information)
Schedules X, Y (Other Income and Deductions)
Schedule R/NR (Resident/Nonresident Worksheet)
Form PV (Massachusetts Income Tax Payment Voucher)
Form M-4868 (Application for Automatic Six-Month Extension of Time to File Massachusetts Income Tax Return)
Form CA-6 (Application for Abatement/Amended Return)
Form 1-ES (Estimated Tax Payment Vouchers)
Massachusetts State Tax Resources
Massachusetts Department of Revenue (DOR): www.mass.gov/dor
Massachusetts DOR “Web Services for Income” ― an online portal where individuals (and businesses) can file and pay taxes, and access their taxpayer information: wfb.dor.state.ma.us/webfile/wsi
Massachusetts DOR “Online Services for Businesses, Trusts and Organizations” ― an online portal where vendors can register a new business, manage their tax profile, and file and pay their taxes online: wfb.dor.state.ma.us/webfile/business
Massachusetts Department of Business Development (DBD): www.mass.gov/EOHED/DBD
The Massachusetts Office of Business Development (MOBD): www.mass.gov/EOHED/MOBD
Massachusetts Assessor’s Information, Bureau of Local Assessment (oversees and assists with local property valuation and classification): www.mass.gov/Local+Officials=Assessor+Information
Massachusetts Appellate Tax Board (state agency that conducts hearings and makes decisions on all types of tax appeals): www.mass.gov/EOAF/Appellate+Tax+Board
Check the status of your Massachusetts state tax refund online: wfb.dor.state.ma.us/webfile/wsi/Features/ViewActivity
Tax Freedom Day is April 16th in Massachusetts.