Massachusetts charges a flat tax rate on most income, with a few exceptions

Massachusetts state income tax is a tax on wages, investment income, and other earnings that you owe to the state. The rate is 5.0% on most types of income — the same percentage whether you earn $30,000 or $300,000 per year. This is called a flat tax. You pay it in addition to federal income tax, and it comes out of your paycheck if you work for an employer, or you pay it when you file your state tax return if you're self-employed.

Massachusetts does not tax certain types of income. Long-term capital gains (profits from selling stocks or property you've held more than a year) are taxed at 5%, but short-term capital gains are taxed at 12%. Certain retirement income, like Social Security and some pension payments, may be excluded from taxation depending on your age and total income. Interest and dividends are taxed at 5%.

The state uses a tax year that runs January 1 through December 31, the same as federal tax. You file your Massachusetts return using Form MA 1040 (the main individual return) or a related form depending on your situation. The filing deadline is typically April 15, the same day federal taxes are due.

Key Takeaways

  • Massachusetts taxes most income at a flat rate of 5.0%, meaning the percentage does not change based on how much you earn.
  • Short-term capital gains (profits from selling assets held less than one year) are taxed at 12%, while long-term gains are taxed at 5%.
  • Social Security benefits and certain pension income may be excluded from state taxation if you meet age and income thresholds.
  • You file using Form MA 1040 by April 15 each year, and the state withholds tax from paychecks automatically if your employer is in Massachusetts.

Who has to pay Massachusetts income tax

You owe Massachusetts income tax if you are a resident of the state or if you earned income in Massachusetts even if you live elsewhere. A resident is someone who lives in Massachusetts for more than 183 days in a tax year, or who maintains a permanent home there. If you moved to Massachusetts mid-year, you count the days you actually spent in the state.

Non-residents who work in Massachusetts but live in another state still owe tax on the income they earned here. For example, if you live in New Hampshire and work in Boston, you owe Massachusetts tax on your Boston wages. However, you may be able to claim a credit on your New Hampshire return to avoid paying tax twice on the same income.

If you are a dependent on someone else's return — typically a student or adult child claimed by a parent — you may still owe your own state tax if your income exceeds the threshold. The threshold changes each year; for 2024, a dependent with more than $1,300 in earned income or $5,200 in unearned income must file.

What income gets taxed at the 5% rate

The 5% flat rate applies to wages from a job, self-employment income, interest, dividends, and most other earnings. If you work for an employer in Massachusetts, your employer withholds 5% (or the amount you request on your W-4 form) from each paycheck and sends it to the state. If you are self-employed, you calculate the tax yourself when you file your return.

Rental income from property you own in Massachusetts is taxed at 5%. Income from a business you operate in the state is also taxed at 5%. Gambling winnings are taxed at 5%. Retirement distributions from a traditional IRA or 401(k) are taxed at 5%, though you may be able to exclude some if you are over 59½ and meet other conditions.

If you receive a bonus, commission, or other lump-sum payment, it is taxed at 5% like regular wages. Severance pay when you leave a job is also taxed at 5%. The state does not distinguish between types of earned income — the rate stays flat.

Income that is taxed at different rates or not taxed

Short-term capital gains — profits from selling stocks, real estate, or other assets you held for one year or less — are taxed at 12%. This is a higher rate than regular income. Long-term capital gains, from assets held more than one year, are taxed at 5%. The difference encourages people to hold investments longer.

Social Security benefits are not taxed by Massachusetts if you are 62 or older. If you are younger than 62, Social Security is taxable. Pension income from a government job (federal, state, or local) is not taxed if you are 62 or older, or if you are a surviving spouse or dependent of someone who was a government employee. Military pensions are also excluded if you meet the age requirement.

Certain retirement distributions may be excluded. If you are 62 or older and receive distributions from an IRA, 401(k), or similar plan, you can exclude up to $6,000 per year (as of 2024; this amount changes annually). This exclusion does not apply if your total income exceeds a threshold, which also changes each year. Check the current year's threshold on the Massachusetts Department of Revenue website.

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

If you work for an employer in Massachusetts, the company withholds state income tax from your paycheck automatically. The amount withheld depends on the W-4 form you fill out when you start the job. On the W-4, you tell your employer how many dependents you claim and whether you want extra tax withheld. Your employer uses this information to calculate the 5% (or adjusted amount) and deduct it each pay period.

If too much tax is being withheld, you can file a new W-4 with your employer to reduce the amount. If too little is being withheld and you owe money when you file your return, you can increase the withholding on a new W-4 to avoid owing again next year. You can change your W-4 at any time during the year.

If you are self-employed or have income with no withholding, you may need to make estimated tax payments to the state four times per year (quarterly). These are payments you send directly to the Massachusetts Department of Revenue. If you do not pay enough through withholding or estimated payments, you may owe a penalty when you file your return.

Filing your Massachusetts return and what happens if you do not

You file your Massachusetts return using Form MA 1040 or a related form (such as MA 1040-NR for non-residents). The form asks for your income from all sources, deductions you are may have access to to claim, and any tax credits. You file by April 15 each year, unless you request an extension. An extension gives you until October 15 to file, but you still owe any tax due by April 15 or you will be charged interest and penalties.

If you do not file and you owe tax, the state charges interest on the unpaid amount starting May 1. The interest rate is set quarterly and compounds daily. You also face a penalty for filing late, typically 5% of the unpaid tax per month, up to 25%. If the state believes you intentionally did not file, the penalty can be higher.

If you do not file but the state believes you owe tax, the Department of Revenue can file a return on your behalf using information from your employer or other sources. This return will likely result in a higher tax bill than if you had filed yourself, because you will not be able to claim deductions or credits you are may have access to to. It is better to file on time, even if you cannot pay the full amount owed.

Deductions and credits that lower your Massachusetts tax bill

Massachusetts allows a standard deduction that reduces the income you pay tax on. For 2024, the standard deduction is $5,250 for single filers and $10,500 for married couples filing jointly. If you are 65 or older, the standard deduction is higher. You can use the standard deduction or itemize deductions if itemizing results in a larger deduction, though most people benefit from the standard deduction.

Massachusetts offers several tax credits that directly reduce the tax you owe. The Earned Income Tax Credit (EITC) is available to lower-income workers and is worth hundreds to thousands of dollars depending on your income and family size. The Child and Dependent Care Credit helps pay for childcare expenses. The Residential Energy Credit gives money back if you make energy-efficient improvements to your home.

You cannot deduct state and local taxes (SALT) on your Massachusetts return, even though you pay them. This is a federal rule that affects your federal return, not your state return. Property tax, sales tax, and other state and local taxes do not reduce your Massachusetts taxable income.

Frequently Asked Questions

Do I have to pay Massachusetts income tax if I work remotely for a company outside the state?

If you live in Massachusetts and work remotely, you owe Massachusetts tax on your wages even though your employer is located elsewhere. The state taxes residents on all income earned, regardless of where the employer is based. However, if you live outside Massachusetts and work remotely for a Massachusetts company, you generally do not owe Massachusetts tax unless you physically work in the state for more than a certain number of days.

What is the difference between the standard deduction and itemized deductions?

The standard deduction is a fixed amount ($5,250 for single filers in 2024) that reduces your taxable income automatically. Itemized deductions let you add up specific expenses like mortgage interest or charitable donations and deduct that total instead, but only if it exceeds the standard deduction. Most people benefit from the standard deduction because it is simpler and usually larger.

Can I claim a credit for taxes I paid to another state?

Yes. If you paid income tax to another state on the same income you are reporting to Massachusetts, you can claim a credit on your Massachusetts return to avoid double taxation. The credit is limited to the lesser of the tax you paid to the other state or the Massachusetts tax on that income. You claim this credit on your MA 1040 form.

What happens if I move out of Massachusetts mid-year?

You owe Massachusetts tax only on income earned while you were a resident. Count the days you lived in Massachusetts during the tax year. If you moved out on July 1, you owe tax on income earned January 1 through June 30. You file a part-year resident return (Form MA 1040-NR-PY) to report this. You may also owe tax to your new state on income earned after you moved.

Is there a way to reduce my withholding if I am having too much taken out?

Yes. You can file a new W-4 form with your employer at any time to adjust your withholding. Tell your employer you want to claim fewer dependents or request that less tax be withheld. Be careful not to under-withhold too much, or you will owe a large bill when you file your return. You can also adjust your withholding if your life circumstances change, such as getting married or having a child.