Basics of the Massachusetts Income Tax
The Bay State is one of a handful with a flat tax rate for all
Massachusetts is one of only nine states that levy a personal income tax at a flat rate. For 2020, the rate dropped to 5%—its lowest in decades. The state has a law enacted in 2002 that pegs the rate to state revenue. Everyone pays the same tax rate except for those with very limited incomes, who pay nothing.
The Bay State has no tax brackets—the progressive tax system that applies in many other states and imposes a higher tax rate as income rises.
Taxable Income in Massachusetts
Massachusetts generally follows the federal rules for taxable income but has a few exceptions. Interest income from any state and local bonds issued outside Massachusetts is taxable, even though it's not taxed on your federal return. Likewise, income from foreign sources that might be excluded on your federal return is taxable in Massachusetts.
Massachusetts does not tax retirement income from federal or state government pensions. Social Security benefits are also exempt, along with disability income resulting from an injury related to military action or a terrorist attack.
A list of federal deductions both allowed and disallowed in calculating Massachusetts adjusted gross income is available on the Massachusetts Department of Revenue website.
Massachusetts Tax Exemptions
Exemptions reduce your taxable income much as deductions do.
You can receive a $2,200 exemption if you or your spouse are legally blind, a $1,000 exemption for each dependent, an exemption for the federally deductible portion of your medical and dental expenses, a $700 exemption for being 65 or older, and a personal exemption based on income and filing status.
Massachusetts Tax Deductions
Massachusetts allows you to take many of your federal above-the-line deductions on your state return to arrive at a lower adjusted gross income for tax calculation purposes. However, IRA contributions are not deductible above the line. This means you are taxed on any contributions made. As of 2019, the state offered no standard deduction.
Deductions such as student loan interest, moving expenses, and college tuition are allowed on your Massachusetts return.
Other items that are deductible include:
- Child care/disabled dependent care: You can deduct amounts paid for childcare or the care of a disabled dependent or spouse so that you can work or look for work. The maximum deduction is $4,800 for one qualifying dependent or $9,600 for two or more dependents as of 2019.
- Dependent deduction: A deduction is allowed for dependents under 12 years old, dependents 65 years or older, or disabled dependents. The deduction amount is $3,600 for one dependent. The maximum deduction is $7,200 for two or more dependents. You can take this deduction or the deduction for child/dependent care, whichever is greater. You can't take both.
- Retirement contributions: A deduction of $2,000 each is available to taxpayers and their spouses for contributions made to Social Security, Railroad, U.S. government, or Massachusetts retirement plans. Medicare premiums deducted from retirement payments are not deductible.
- Rent deduction: You can receive a deduction for up to 50% of rent paid during the year for a total deduction not to exceed $3,000 as of 2019.
- Commuter deduction: Individuals can deduct commuting costs, including tolls paid and the cost of transit passes, but only when they exceed $150 per year. The maximum commuter deduction is $750 per person.
Massachusetts Capital Gains Tax Rates
Massachusetts taxes all income at a flat rate of 5% in 2020—with the exception of short-term capital gains.
Short-term capital gains are those from the sale of assets you've owned for less than one year. Short-term capital gains are taxed at 12%. Long-term capital gains for assets held for one year or more are taxed as ordinary income at the regular 5% rate for 2020.
Massachusetts Tax Credits
Tax credits are subtracted from the tax you owe, and some of them are refundable. This means the state will refund to you any portion of the credit left over after subtracting the tax you owe. The following credits are available in Massachusetts:
- Earned Income Credit: This credit is refundable and can be claimed for 30% of your federal earned income credit (EIC) as of 2019.
- Limited Income Credit: Those who meet certain income thresholds can qualify for the Limited Income Credit (LIC). The amount of this credit depends on your adjusted gross income (AGI) after taking above-the-line deductions, and it also depends on your filing status. AGI limits as of 2019 are $14,000 for single filers, $25,200 plus $1,750 per dependent for those who qualify as head of household, and $28,700 plus $1,750 per dependent for married couples who file jointly. If you earn more than this, you can't qualify.
- Real Estate Tax Credit: This credit is refundable as well. Certain taxpayers aged 65 or older can claim this credit for real estate taxes paid on a home they own or rent as their principal residence. The credit is equal to the amount by which property tax payments exceed 10% of their total income for the tax year. Renters must use 25% of their yearly rent instead of property tax payments.
Additional credits, such as one for income taxes paid to another state and one for renewable energy, are also available.
Health Insurance Reporting
Under the Massachusetts Health Care Reform Law, you must report information relating to your health insurance coverage on your tax return. You might have to pay penalties to the state if you did not have insurance for all or part of the year.
Massachusetts No Tax Status
Massachusetts imposes no state tax on those with very low incomes. In 2019, this amounts to $8,000 for single filers, $14,400 plus $1,000 per dependent for head-of-household, and $16,400 plus $1,000 per dependent for married couples filing jointly.
Filing Your Return
All residents with a gross income greater than $8,000, and nonresidents whose income exceeds the lesser of $8,000 or the prorated personal exemption, are required to file a Massachusetts income tax return. Returns are ordinarily due April 15 (July 15 in 2020), and you can file on paper or electronically. The state has a free e-file program called MassTaxConnect, or you can file electronically through state-approved tax practitioners, websites, or software. If you prefer to file on paper, forms are available online.
Federation of Tax Administrators. “State Individual Income Taxes.” Accessed Aug. 26, 2020.
Mass.gov. “Income Tax Rate to Drop to 5.05% on Jan. 1.” Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Page 13. Accessed Aug. 26, 2020.
Mass.gov. “Learn About the Filing Requirements for Dividends and Interest.” Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 4, 10. Accessed Aug. 26, 2020.
Mass.gov. “TIR 02-19: Massachusetts State Tax Relief for Victims of Terrorist Attacks.” Accessed Aug. 26, 2020.
Mass.gov. “Massachusetts Tax Information for Seniors and Retirees.” Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Page 9. Accessed Aug. 26, 2020.
Mass.gov. “Learn About Massachusetts Adjusted Gross Income (AGI).” Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 21, 22. Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 11, 12, 22-23. Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Page 3. Accessed Aug. 26, 2020.
Mass.gov. “Personal Income Tax for Residents.” Accessed Aug. 26, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 3, 14. Accessed Aug. 23, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 14, 15, 29. Accessed Aug. 23, 2020.
Mass.gov. “Form 1 2019 Massachusetts Resident Income Tax,” Pages 3, 16. Accessed Aug. 26, 2020.
Mass.gov. “Who Must File a State Personal Income Tax Return.” Accessed Aug. 26, 2020.