Basics of the Massachusetts Income Tax
This is one of only a few states with one tax rate regardless of income
Massachusetts is one of only eight states that levies a personal income tax at a flat rate as of 2018. That rate is 5.1 percent. There are no tax brackets here—the progressive tax system that applies in other states and imposes a higher tax rate as income rises. Everyone pays the same tax rate regardless of income, with one exception. This 5.1 percent rate has been in effect since 2016.
Those with very limited incomes might qualify for Massachusetts' "No Tax Status." They must still file a tax return but they're exempt from paying any state income tax.
The Bay State is also one of only a handful of states that allow same-sex couples to file joint income tax returns.
Taxable Income in Massachusetts
Massachusetts generally follows the federal rules for taxable income, but with a few exceptions. Interest income from state and local bonds other than MA bonds is taxable in Massachusetts, although 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 as well.
However, retirement income from government pensions, either federal or state, as well as Social Security benefits are not taxable by the state. Disability income resulting from an injury related to military action or a terrorist attack is also not taxable.
A complete list of items that are taxable on your federal return but are not taxable in Massachusetts—and vice versa—is available on the Massachusetts Department of Revenue website.
Massachusetts Tax Exemptions
Exemptions reduce your taxable income much like deductions do. The Massachusetts tax code offers several exemptions.
You can receive a $2,200 exemption if you or your spouse is 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 allows you to take many of your federal above-the-line deductions on your state return as well, but with one notable exception. IRA contributions are not deductible above the line in Massachusetts. The state doesn't offer a standard deduction as of 2018, either.
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 amount of the deduction is $9,600 or $4,800 if you have only one qualifying dependent as of 2018.
- 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 either this deduction or the deduction for child/dependent care, whichever is greater, but 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 contributions are not deductible.
- Rent deduction: You can receive a deduction for up to 50 percent of rent paid during the year for a total deduction not to exceed $3,000 as of 2018.
- 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 5.1 percent with the exception of short-term capital gains. Short-term capital gains are those from the sale of assets that you've owned for less than one year. Short-term capital gains are taxed at 12 percent.
Long-term capital gains for assets held for one year or more are taxed as ordinary income at the regular 5.1 percent rate.
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 that's 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 23 percent of your federal earned income credit (EIC) as of 2018. This "match rate" was 15 percent through December 2015 when the state increased it.
- 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 2018 are $14,000 for single filers, $25,200 for those who qualify as head of household, and $28,700 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 that they own or rent as their principal residence. The credit is equal to the amount by which property tax payments exceed 10 percent of their total income for the tax year. Renters must use 25 percent 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 have to 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.
Filing Your Return
You are required to file a Massachusetts income tax return if your gross income before deductions is over $8,000. Returns are due April 15, 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.
A Note for Same-Sex Couples
Same-sex couples who are married must file their Massachusetts return as either married filing separately or married filing jointly. The state recognizes valid same-sex marriages only for tax periods that end on or after May 16, 2004.