How the Massachusetts Remote Work Tax Affects You
Learn how Massachusetts determines taxable income for remote workers, including the state's unique income sourcing rules and how to navigate tax credit options.
Massachusetts applies tax rules to income earned by non-residents based on where work is physically performed. Non-residents are required to pay Massachusetts income tax on wages earned for services performed within the Commonwealth. The regulations address the modern reality of telecommuting and its implications for state tax revenue, creating specific obligations for those who work within the Commonwealth, even on a part-time basis.
Determining Who is Subject to the Tax
The Massachusetts income tax impacts two groups of employees. The first group is non-residents who perform work within Massachusetts. If a non-resident employee travels to Massachusetts to work, whether for a day or on a hybrid schedule, the income earned for those days is considered Massachusetts-source income and is subject to the state’s income tax.
The second group are Massachusetts residents who are employed by companies located outside of the state. As residents of the Commonwealth, these individuals are generally taxed on all of their income, regardless of where their employer is physically located. Their residency subjects their worldwide income to state taxation, including wages earned from an out-of-state company while working remotely from their home in Massachusetts.
For tax purposes, a Massachusetts resident is defined as anyone who maintains a permanent home in the state and spends more than 183 days of the tax year in the Commonwealth. A non-resident is someone who does not meet these criteria. For non-residents, the physical location where they perform their work duties determines taxation.
Calculating Massachusetts Taxable Income for Non-Residents
For non-residents, taxable income is calculated using income apportionment. This process determines the portion of total compensation from work performed in the Commonwealth. The formula is based on the ratio of Massachusetts workdays to total workdays.
The formula is: (Number of Massachusetts Workdays / Total Workdays) x Total Compensation = Massachusetts Taxable Income.
Total workdays typically exclude weekends, holidays, and sick days. A “Massachusetts workday” is any day an employee is physically present in the state and performing work. Days worked from home in another state are not counted as Massachusetts workdays.
To illustrate, consider a non-resident who works for a Boston company on a hybrid schedule, spending two days per week in the Boston office and three days working from home in a neighboring state. For tax purposes, only the two days the employee is physically present in Boston are considered Massachusetts workdays. If the employee works 260 days total during the year, with 104 of those days spent in the Boston office, their Massachusetts taxable income would be 40% (104 / 260) of their total compensation.
Tax Credits for Taxes Paid to Other States
Remote work can lead to an individual’s income being taxed by more than one state, causing double taxation. To address this, tax credits are available, but the rules differ significantly for Massachusetts residents versus non-residents.
Massachusetts residents who work remotely for a company in another state and pay income tax there can claim a credit on their Massachusetts tax return. For example, a Massachusetts resident who works remotely for a New York company and pays New York income tax can use the Credit for Taxes Paid to Another Jurisdiction to reduce their Massachusetts tax liability. This credit is generally limited to the lesser of the tax paid to the other state or the amount of Massachusetts tax due on that same income.
A non-resident who works in Massachusetts and pays tax to the Commonwealth does not receive a credit from Massachusetts. Instead, that individual must look to their own home state for tax relief, as the home state determines if it will offer a credit for taxes paid to Massachusetts.
For instance, a state with its own income tax may offer a credit for taxes paid to another state, effectively offsetting the Massachusetts tax. However, if the non-resident lives in a state with no personal income tax, there is no mechanism to claim such a credit, and the Massachusetts tax liability remains an unreimbursed cost.
Filing and Reporting Requirements
The specific forms required depend on the individual’s residency status. Massachusetts residents must file Form 1, the Massachusetts Resident Income Tax Return, to report all income from all sources. Any credit for taxes paid to another jurisdiction is claimed on this form and detailed on Schedule OJC, Income Tax Due to Other Jurisdictions.
Non-residents who are subject to the tax must file Form 1-NR/PY, the Massachusetts Nonresident/Part-Year Resident Income Tax Return. This form is used to report only the income that is sourced to Massachusetts. The Massachusetts Schedule R/NR is used to determine the portion of income attributable to the state.
Employers also have specific obligations. A company that has an employee working within Massachusetts, even temporarily, must withhold Massachusetts income tax from the wages earned during those periods. An employee’s Form W-2 should show the Massachusetts wages earned and the corresponding state tax withheld.
This withholding requirement ensures that the tax liability is collected throughout the year, preventing a large balance due when the employee files their return. It also serves as a clear indicator to the employee that they have a filing obligation in Massachusetts.