Massachusetts Tax and CPA Services: State, County and City Taxes

Massachusetts looks simple on the surface: one 5 percent income tax rate for most income. Underneath, there is a 4 percent surtax on high incomes, a higher rate on short-term capital gains, an elective excise for pass-through businesses, a paid family and medical leave program with employer and employee shares, and local option taxes on restaurant meals and hotel stays. Boston-area residents who work in New Hampshire or Rhode Island, and startup founders and tech employees with equity, run into its rules often. We serve Massachusetts clients remotely from our Naperville, Illinois office.

Individual income tax

The Massachusetts Department of Revenue lists a 5 percent rate for personal and fiduciary income of residents, nonresidents and part-year residents, including long-term capital gains, dividends, interest, wages and other income. Withholding on wages is also 5 percent. Short-term capital gains from sales or exchanges of capital assets are taxed at 8.5 percent, and long-term gains from collectibles are taxed at 12 percent, subject to a 50 percent deduction.

The 4 percent surtax. Since tax year 2023, taxpayers pay an additional 4 percent on taxable income above a threshold that is adjusted for inflation each year. The page lists the threshold as $1,053,750 for 2024, $1,083,150 for 2025 and $1,107,750 for 2026. The surtax applies to individuals, trusts, estates and unincorporated associations, and nonresidents who must file Form 1-NR/PY. It is a reason for founders and executives to plan the timing of stock sales, option exercises and business sales; see capital gains and losses and QSBS Section 1202. Married taxpayers with different residency or periods of residency have special rules for the surtax.

Massachusetts taxes residents on all income and nonresidents on Massachusetts-source income. The state has no local income tax, but commuters from New Hampshire or other states, remote workers and people who move across state lines should review sourcing and day-count rules. See our multi-state tax service.

Business taxes

Business and manufacturing corporations pay an excise on net income at 8 percent, plus a non-income measure of $2.60 per $1,000 of tangible property or net worth, with a minimum of $456. S corporations that are not financial institutions pay a smaller excise on net income: 2 percent when total receipts are $6 million or more but under $9 million, and 3 percent when they are $9 million or more. Financial institutions pay 9 percent.

Under General Laws Chapter 63D, partnerships, S corporations and certain trusts can elect a 5 percent pass-through entity excise on the income that would be subject to Massachusetts personal income tax at the owner level. Qualified members, meaning natural persons, estates and trusts subject to Massachusetts personal income tax, receive a personal income tax credit for 90 percent of their pro rata share of the excise paid when it is paid with a composite return. The state created it in response to the federal cap on the state and local tax deduction; see SALT deduction and property taxes. A pass-through entity may also withhold on nonresident members or file a composite return for members who are nonresidents for the entire year.

Sales and use tax

The sales and use tax rate is 6.25 percent on the sale, rental or use of tangible personal property, including telecommunications services and certain fuel. Restaurant meals and on-premises beverages are also taxed, and a city or town can add a local sales tax on meals. Marijuana is subject to a state sales tax, a state excise and an optional local tax. Room occupancy is taxed at a state rate of 5.7 percent, with a local option of up to 6 percent (6.5 percent in Boston), plus 2.75 percent for convention center funding in Boston, Worcester, Cambridge, Springfield, West Springfield and Chicopee, and 2.75 percent in Barnstable County for water protection. Cities and towns may also charge a short-term rental community impact fee of up to 3 percent. See our sales tax service.

Payroll in Massachusetts

• Paid Family and Medical Leave (PFML): employers with 25 or more covered individuals send a total contribution of 0.88 percent of eligible wages. Up to 100 percent of the 0.18 percent family leave contribution and up to 40 percent of the 0.70 percent medical leave contribution (0.28 percent) can be withheld from workers, and the employer pays the rest. Employers with fewer than 25 covered individuals send an effective 0.46 percent and have no employer share of the medical leave contribution. Individual contributions are capped by the Social Security taxable maximum. See state paid family and medical leave.
• Unemployment insurance: new employers registered for less than three years pay 2.42 percent, and new construction employers pay 6.08 percent. Late payments carry a 12 percent interest rate. Employers manage accounts through the Department of Unemployment Assistance's employer portal. See state unemployment insurance.
• Withholding: 5 percent on wages, with the surtax applying to wages over the threshold. See state income tax withholding.

Cities, towns and local taxes

Massachusetts has cities and towns that levy property tax and local option excise taxes, and the Division of Local Services (part of DOR) supports them. The local option taxes in the tax rate table, meals, hotel and short-term rental fees, are the main local levies besides property tax. For metro-area guidance see our Boston page, and see Connecticut for the neighbor to the south.

How we can help

We prepare Massachusetts resident, part-year and nonresident returns, model the 4 percent surtax before large sales, evaluate the pass-through entity excise, and set up payroll including PFML. For a letter from DOR, see state tax notices and representation. Contact us to begin; this page is general information.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.