It may seem like filing your taxes should be easy since Massachusetts is one of the few states that has a flat income tax rate, however, additional complex factors contribute to the total amount you owe. Just in the last year, there have been several changes that will impact your income taxes.
In fact, the Massachusetts state income tax was just lowered from 5.1% to 5.05%, so you can keep more of your hard-earned money.
Whether you have been a resident of Massachusetts for years, or recently moved here, the nuances of tax laws can make understanding the filing process confusing. For starters, you should know that anyone who has earned over $8,000 in Massachusetts over the last year will need to file.
Don’t put yourself at risk of underpaying only to face fines; use our income tax calculator or enlist the help of one of our tax experts for peace of mind.
Overview of Massachusetts State Taxes
Paying taxes may seem unfair but it actually contributes to your quality of life. In addition to federal taxes, the state you reside in, or the state in which you make a significant portion of your income, has the right to require you to pay taxes. So exactly how much is Massachusetts state tax?
The primary Massachusetts tax rates you should be aware of are:
Massachusetts State Taxes: Quick Facts
Income tax: 5.05%
Sales tax: 6.25%
Property tax: 1 - 2% of home value
Annual 2019 Tax Burden ($75,000/yr income)
Total Estimated Tax Burden
Remaining Income = $65,025
Massachusetts state taxes contribute to government initiatives such as investing in good schools, medical care, the environment, and many other factors that probably contributed to your decision to make Massachusetts your home.
The state also boasts one of the best economies in the country, offering plenty of opportunities for personal and professional growth.
Massachusetts State Tax Brackets
While federal taxes are universally applied to all citizens based on a 7-tier system, there are no Massachusetts state tax brackets. Instead, the state has a flat income tax rate. This means that all levels of income are taxed at the same Massachusetts state tax rate of 5.05%.
While this simplifies the process, it also means that lower-income individuals pay the same as those who are very well-off. Although this process may seem imbalanced, you don’t have to worry about a jump in tax brackets downsizing your new raise - at least on the state level.
Are Self-Employed Individuals Taxed Differently?
Running your own business has become easier and easier to do over the last few years. Because of this, self-employment has become a more popular option for Bay Staters with an entrepreneurial spirit and is an important part of the Massachusetts economy.
However, just because you create your own income doesn’t mean you get off without paying taxes. If you earn more than $600 annually from your home business, you’ll need to pay taxes on that income at a rate of 15.3%. This includes taxes paid to Social Security and Medicaid.
Your taxable income will include your business’ net profit for the year, or your total gross profit minus business expenses. Business expenses may include those that are considered ordinary and necessary for your industry.
For example, business insurance, advertising costs, and legal fees would fall into this category. You may also be able to deduct home office expenses.
Whether you’re new to self-employment or have been running your own business for years, a tax professional at Community Tax can help you ensure that you are properly reporting your income and taking advantage of the expenses you can write off.
Reach out to our firm today so you can use your valuable time to focus on what makes your business successful, instead of dealing with the headache of trying to file your taxes. Plus, our tax consultations are free.
Your personal income tax is based on your wages and additional income from dividends, interest, and net capital gains. However, you won’t need to file a return if your gross income was less than $8,000. The Massachusetts income tax rate recently decreased from 5.1% to 5.05%.
While this might not seem significant at first glance, it has made a notable difference for many residents. Last year, Massachusetts collected a total $16.24 billion in income taxes. That’s a lot of money that can go towards improving the quality of life in the state.
What Qualifies as Income?
You can be taxed on any wages, income, or compensation you earn including:
Payment for services
Dividends and interest
How Much of My Income Is Taxable?
To determine your taxable income, you need to subtract your gross income, and deductions found on Form 1 (Lines 11-14) or Form 1-NR/PY (Lines 11-16), and deductions on Schedule Y (Lines 11 – 16) from your adjusted gross income (AGI).
Not one for crunching numbers? We’re happy to assist you. Community Tax provides professional tax preparation services that can help you ensure you report your income correctly and protect you from hefty penalties that may be incurred if you underpaid due to a simple miscalculation.
Our pros make filing income tax a breeze, Give us a call!
The tax applied to capital gains is based on two factors: the difference between the purchase price of an asset and the amount you sold it for, as well as how long you had the asset before it was sold. An asset held for one year or less is considered short-term. For long-term capital gains, the tax rate is 5.05%.
However, for short-term capital gains, the tax rate is much higher at 12%. If you had to sell the asset for less than what it was worth, this may be considered a capital loss and might actually reduce the total amount you owe.
Massachusetts State Sales Tax
A sales tax is one that’s applied to the sales price or rental charge of all tangible goods. The Massachusetts state sales tax rate is 6.25%. While this might sound like a lot, many other states vary from county-to-county like in Colorado which can be as high as 8% in some counties.
For example, when you purchase a new T.V., rent a kayak, or buy popcorn at the movies. This also applies to some telecommunication services like your cell phone bill. However, your cable T.V. and WiFi aren’t included.
While sales tax is applied to all goods purchased in the state of Massachusetts, there’s also something known as a use tax which is charged on any items purchased outside of Massachusetts that are going to be brought into the state for permanent use.
This might sound confusing, a common example applies to online purchases ordered out-of-state but shipped to your home in the Bay State. Online purchases often seem like they’re tax-free, but if you’re not taxed by the seller, you’ll still owe the state. Massachusetts use tax is the same as sales tax, 6.25%.
However, some purchases can be a bit more complex. If you’ve purchased a car outside state lines, there are certain rules that dictate whether you owe additional tax to Massachusetts and when that payment is due.
Note: There are also some vehicle purchases that might be exempt from these sales and use taxes.
If you’re transferring your vehicle over to your child for their Sweet 16, you won’t owe sales or use taxes, and you get that new SUV you’ve had your eyes on.
If for some reason you’ve failed to pay the sales or use tax at the time of purchase, you’ll have the opportunity to account for it when filing your taxes. If you don’t, you might be penalized.
Planning to make one or more big purchases this year? Speak with an experienced agent at Community Tax before or after you buy to make the taxation process easier.
Massachusetts Excise Tax
Not every good is taxed equally. If you enjoy consuming alcohol and tobacco, your lifestyle could cost you more than you expect over the course of a year. Special taxes, known as “excise taxes”, are applied to products such as alcohol, tobacco, and marijuana.
Fuel and vehicle purchases might also incur the additional tax. Excise taxes are also sometimes referred to as “sin taxes” (in terms of alcohol and tobacco) or “consumer taxes” on frequently purchased goods. As a Bay State resident, you should keep the following excise taxes in mind:
If you own a motor vehicle or trailer, you’re required to pay an annual excise tax in the amount of $25 per $1,000 of value. So, for example, if your car is worth $10,000, you’ll owe an excise tax of $250, but the minimum excise tax is $5 per year.
Note: It’s important to be aware that certain exemptions may apply including if the vehicle is owned by a government agency or charitable or religious organization. If you’re a current services member, surviving prisoner of war, or a disabled veteran, you or your spouse are entitled to one exempt vehicle.
When it comes to consuming liquor, the tax depends on the ABV (alcohol by volume) of the beverage in question. If your favorite beverage is cider, you’re in luck as you will only pay about $0.03 per gallon in excise tax.
However, if you prefer sparkling wine, be prepared to pay a little extra because it’s taxed at $0.70 per gallon. Bay Staters who want to enjoy an especially strong drink, specifically 50-proof or more, will pay an excise tax of $4.05 per gallon.
However, since you aren’t typically going to be consuming alcoholic beverages by the gallon, unless you’re hosting a keg party, these taxes usually have a fairly minimal effect on your overall cost.
Following the recent movement to reduce tobacco use across the country, cigarettes are highly taxed in many states. In Massachusetts, the cigarette tax is $3.51 per pack. This might seem like a lot, but it’s actually fairly modest compared to other coastal states.
New Yorkers have to pay $4.35 extra per pack. In fact, increasing taxes on tobacco products seems to be a trend across the country. Surely you’ve heard about the recent jump in taxes on cigarettes at $2 per pack voted into effect by California residents.
As one of the greenest states in the nation, several Massachusetts taxes are directed at efforts to reduce the impact on the environment. In Massachusetts, gasoline is taxed at a rate of $0.24 per gallon. For many Bay Staters, that means you’re paying about $2.00 - $3.00 extra in taxes every time you fill up your car.
If you commute far to work or travel frequently to visit a loved one, this can add up throughout the year. Gas for your car isn’t the only fuel that’s charged the excise tax; if you want to host a BBQ, you will have to pay 19.1% in excise tax on propane for your grill.
Feeling up-in-arms? Keep in mind that this excise tax isn’t exclusive to Massachusetts, but occurs in most states. While excise taxes may seem like another unnecessary expense, they’re imposed with good intent.
Their original purpose was to deter the use of products that can have serious consequences on your health when used frequently. Instead of banning these goods, you still have the option to indulge when you want, you just have to pay a little extra.
Massachusetts Insurance Tax
Despite the fact that health insurance is no longer required on the federal level, everyone over 18 years old in Massachusetts must have health insurance, even if you’re exempt from filing your taxes.
If you don’t maintain health insurance, you could face costly penalties, unless you make less than or equal to 150% of the applicable Federal Poverty Level.
Federal Poverty Level – Annual Income Standards
For each additional person add
Note: The penalty will vary depending on your family size, age, and income. Although you could only end up paying about $250, there’s a chance you might end up owing over $1,000. If you were unable to pay for health insurance because of a hardship, you might be able to dispute the penalty.
There’s a three-month grace period for a gap in coverage. Additionally, if you’re self-employed, you can deduct the cost of your health insurance from your income.
Still not sure whether you’re going to be subject to a penalty? Speak with one of our team members during a free consultation to ensure you aren’t paying unnecessary fines.
Massachusetts State Property Tax
The state property tax in Massachusetts is a bit higher than the national average, which makes owning property here costlier than elsewhere. Property tax rates depend on the city or town that you live in. For example, the 2019 Boston property tax rate is $10.54 per $1,000 of value for residential property.
For most homeowners, Bay State property taxes are between 1 and 2% on average, which is about $15.48 per $1,000 of assessed value. The highest residential taxes are paid in Longmeadow, at a rate of $24.09 per $1,000 of assessed value.
While Massachusetts property taxes might be higher than many states, like Colorado which taxes at about 0.51%, don’t let that single factor deter you from purchasing your dream home.
Massachusetts residents enjoy many perks including breathtaking seasonal changes, a rich history and culture, and access to world-class healthcare and educational institutions. Plus, property taxes are on par with states like Illinois and Wisconsin.
We offer professional help with property taxes. Learn more!
The loss of a loved one can be distressing and overwhelming. If you’ve been named the personal representative of an estate, the responsibility is even heavier.
As the representative, you are financially responsible for any taxes that were not paid properly—so it’s critical that all taxes are paid in the correct amount and on time. But don’t start worrying just yet, estate tax returns are only required if the estate was worth over $1,000,000.
Note: If you aren’t the estate’s personal representative but have received money or property from an estate worth over $1,000,000, you’ll also need to pay estate taxes.
Between grieving and trying to understand the nuances of Massachusetts’ estate tax laws, the process can be cumbersome. Allow our tax experts to file your estate tax return on your behalf so you can focus on you and your family during this difficult time.
Massachusetts State Tax Credits
You’d be surprised by some of the tax credits you may qualify for such as lead paint removal; solar, wind, and energy upgrades; and the repair or replacement of a failed septic system.
Since Massachusetts prioritizes environmentally conscious initiatives, these tax credits are seen as a way to encourage property owners to do their part.
Massachusetts State Tax Exemptions and Deductions
In addition to exemptions that are applicable to your federal tax filing, you should also see if you qualify for any state-specific exemptions and deductions.
What Tax Exemptions Does Massachusetts Allow?
Massachusetts state tax exemptions include:
Age 65 or older
Medical and dental expenses
Note: On your Massachusetts tax return you can also list personal exemptions.
Personal exemptions will depend on your filing status:
Massachusetts Personal Exemption Amounts
Head of Household
Married Filing Separate
Married Filing Joint
While the deductions for some of these exemptions may seem small, they can add up.
If one or more of these exemptions applies to you, you should be sure to note them because they could potentially save you thousands of dollars.
Note: If your exemptions are more than your total income, you might qualify for an excess exemption.
Your taxable income is your gross income minus deductions, also known as your adjusted gross income (AGI). Massachusetts allows for a wide variety of deductions, including, but not limited to:
Childcare expenses for children under age 13 or disabled dependent or spouse
Dependent household member(s) under age 12, or dependents age 65 or older, or disabled dependents
Rent paid in Massachusetts
Social Security and Medicare (FICA taxes)
Alimony you have paid
Don’t miss out on potential deductions; our tax professionals can help you find every tax break you qualify for.
Note: If you aren’t listed as a dependent, you also could qualify for deductions related to your student loan repayments.
Discover more deductions -- speak to a tax pro today!
How to file Massachusetts income tax will depend on your residency status:
If you’re a full-time resident, you will complete Form 1
Part-time residents and non-residents will complete Form 1 NR/PY
Depending on your circumstances, you might also need to file several other additional forms.
For most people, getting your tax return as soon as possible is ideal. When filing your state taxes in Massachusetts, it’s highly recommended that you file online because you’ll likely receive your return a lot faster, usually in about two weeks.
If you file by mail, it’ll usually take about six weeks to get your return. For the best possible experience when filing your Massachusetts income taxes, we encourage you to take advantage of our fast and streamlined professional services.
How to Pay Massachusetts Taxes
If you’re self-employed and expect to owe more than $400 in Michigan taxes, you’ll need to make estimated payments on a quarterly basis.
If you’ve paid at least 80% of the taxes you owe by April 15th, you automatically qualify for a 6-month extension if you choose to file one. You can also apply any overpayment from 2018 to your 2019 tax payments.
Massachusetts recently reinstated a sales tax holiday for two days each August where many goods and services are tax-free
Clothing items under $175, car repairs, and costumes are all sales tax exempt in Massachusetts
In Boston, sightseers must pay a 5% tax on any water- or land-based sightseeing tourist venue, entertainment cruise, or trolley tour
In addition to the state sales tax, marijunna is subject to 10.75% excise tax (cities are also able to charge an additional 3% at their discretion)
Cities can charge an additional .75% excise tax on restaurant meals for a total of 7% in taxes
While Massachusetts is no stranger to tax-related controversy, from the Boston Tea Party to the undesirable nickname “Taxachusetts”, the state is taking strides with tax reform to reduce the burden on its tax paying citizens.
Summary of Federal Taxes
In addition to Massachusetts state tax, you’re also responsible for federal taxes. While you could qualify for certain exemptions or deductions on the state level, that doesn’t mean you’ll be able to claim them when you file federally.
You’ll also be subject to federal tax brackets based on your income level instead of the flat rate applied for Massachusetts state income tax.
Take the guesswork out of filing your taxes and contact an expert at Community Tax. We can answer any questions you may have, provide guidance on your return, and even file your taxes on your behalf.
Call us to stress less and save more on your federal tax refund.
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