Massachusetts charges a flat 5% tax on most income, with a few narrow exceptions

Massachusetts state income tax is a tax on wages, investment income, and other earnings that you owe to the state. The rate is 5% on most types of income — that means if you earn $50,000 a year, you pay $2,500 to Massachusetts. The tax is withheld from your paycheck by your employer, so you do not see the full amount; it goes directly to the state Department of Revenue.

The 5% rate applies to wages, salaries, tips, interest, dividends, and capital gains. A few categories are taxed differently or not at all: long-term capital gains (gains on assets held more than one year) are taxed at 5%, but short-term gains are taxed at your ordinary rate. Certain retirement income, like distributions from IRAs and 401(k)s, is also taxed at 5%. Unemployment benefits, Social Security, and some pension income have their own rules.

You file a Massachusetts state tax return (Form 1) if you lived in the state for any part of the tax year and earned income there. If you moved to Massachusetts mid-year or moved out mid-year, you still file. The filing deadline is the same as the federal deadline: April 15 (or the next business day if that falls on a weekend).

Key Takeaways

  • Massachusetts taxes most income at a flat 5% rate, withheld from your paycheck by your employer.
  • You file a state return (Form 1) if you lived in Massachusetts for any part of the year and earned income there.
  • Retirement income, investment income, and wages are all taxed at 5%, with narrow exceptions for certain pension and Social Security income.
  • The state offers a tax credit for dependent children and a property tax credit for low-income homeowners and renters.

Who has to file a Massachusetts state return

You must file if you lived in Massachusetts for any part of the tax year and your income exceeded the filing threshold. For the 2023 tax year, the threshold is $15,000 for single filers and $30,000 for married couples filing jointly. If you earned less than that, you do not have to file — but you may want to, because you might be owed a refund if taxes were withheld from your pay.

If you worked in Massachusetts but lived in another state, you still owe Massachusetts tax on the income you earned there. You file a part-year resident return (Form 1-NR/PY) and claim a credit on your home state's return to avoid paying tax twice on the same income. If you moved to Massachusetts mid-year, you file a part-year return showing income before and after the move date.

Military members stationed in Massachusetts are generally not required to file a state return on military pay, but they must file on other income (wages from a civilian job, for example). Nonresidents who worked in Massachusetts for part of the year follow the same rule: file on Massachusetts income only.

What income is taxed and what is not

Wages, salaries, tips, bonuses, and self-employment income are all taxed at 5%. Interest from savings accounts and bonds is taxed at 5%. Dividends from stocks are taxed at 5%. If you sold a stock or other asset for a profit, that gain is taxed at 5% whether you held it for one year or one day.

Some income is not taxed by Massachusetts. Social Security benefits are not taxed. Distributions from traditional IRAs and 401(k)s are taxed at 5%, but only the portion that represents earnings — contributions you made with after-tax dollars are not taxed again. Certain pension income is not taxed if you are over 62 and the pension comes from your own employment. Gifts and inheritances are not taxed. Disability benefits from Social Security (SSDI) are not taxed.

Unemployment benefits are taxed at 5%. Workers' compensation is not taxed. Scholarships and grants used for tuition are not taxed, but scholarships used for room and board are. If you received a Pell Grant or other federal education aid, that portion is not taxed.

Tax credits and deductions available to Massachusetts residents

Massachusetts offers a dependent exemption of $215 per dependent child (for the 2023 tax year; this amount changes yearly). You claim it on Form 1 by listing each child's name and Social Security number. This reduces your taxable income, not your tax bill directly — so the value depends on your tax rate.

The state also offers a property tax credit for low-income homeowners and renters. If you own a home or rent and your income is below a certain threshold (which varies by year and family size), you may be owed a credit of up to several hundred dollars. You claim this on Form 1-CR. The credit is based on property taxes paid or rent paid in the prior year.

Massachusetts does not allow a standard deduction the way the federal government does. Instead, you claim the dependent exemption and any credits you may have access to for, then pay 5% tax on the remaining income. If you itemize deductions on your federal return, you cannot itemize on your Massachusetts return — you must use the exemption method.

How withholding works and what to do if too much or too little is taken

Your employer withholds Massachusetts tax from each paycheck based on the W-4 form you filled out when you were hired. The W-4 tells your employer how much to withhold. If you claimed too many exemptions on your W-4, too little tax is withheld and you owe money when you file. If you claimed too few, too much is withheld and you get a refund.

You can change your withholding at any time by submitting a new W-4 to your employer. If you expect to owe money this year, you can increase your withholding now to avoid a large bill in April. If you expect a big refund, you can decrease your withholding to bring home more pay each week.

If you are self-employed or have income with no withholding (such as rental income or investment income), you may need to make estimated tax payments to Massachusetts four times a year. These are due April 15, June 15, September 15, and January 15. If you do not make estimated payments and owe more than $400 when you file, you may owe a penalty.

Filing your return and where to send it

You file your Massachusetts return using Form 1 (the state income tax return). You can file on paper by mailing it to the Massachusetts Department of Revenue, or you can file electronically using tax software or a tax preparer. Electronic filing is faster and you get a confirmation that the state received your return.

If you file on paper, mail Form 1 and any supporting documents to the address shown in the instructions (it changes based on your filing status). Keep a copy for your records. If you file electronically, you do not mail anything — the software submits it directly to the state.

If you are owed a refund, the state processes it within four to six weeks of receiving your return (longer if you filed on paper). You can check the status of your refund on the Department of Revenue website by entering your Social Security number and the amount of your refund. If you are owed money, you can request direct deposit to your bank account, which is faster than a paper check.

Frequently Asked Questions

Do I have to pay Massachusetts tax if I moved out of state mid-year?

Yes, you owe tax on income earned while you lived in Massachusetts. File a part-year resident return (Form 1-NR/PY) showing the date you moved. You pay 5% tax only on income earned before the move date. Your new state may also tax you on income earned after you moved there.

What happens if I do not file a Massachusetts return?

If you owed tax and did not file, the Department of Revenue may assess a penalty and interest on the unpaid amount. If you are owed a refund, you have three years to file and claim it — after that, the money goes to the state. If you think you owed tax, file as soon as you can.

Can I deduct federal taxes paid from my Massachusetts income?

No. Massachusetts does not allow you to deduct federal income tax, state income tax, or local taxes from your Massachusetts taxable income. You pay 5% on your income after the dependent exemption, regardless of what you paid in federal tax.

Is retirement income taxed differently in Massachusetts?

Most retirement income is taxed at 5%. However, if you are over 62 and receiving a pension from your own employment (not a spouse's), that pension income may not be taxed. Social Security is never taxed. IRA and 401(k) distributions are taxed at 5% on the earnings portion.

What if my employer did not withhold enough tax?

You will owe the difference when you file your return in April. You can avoid this next year by submitting a new W-4 to your employer to increase withholding, or by making estimated tax payments if you have self-employment or investment income with no withholding.