Massachusetts Self-Employment Tax Explained
Understand your tax obligations as a self-employed individual in Massachusetts. Learn how federal SE tax and state income tax interact for your business.
Many self-employed individuals in Massachusetts are often confused about their tax obligations, specifically whether a unique state-level self-employment tax exists. Massachusetts does not have a separate tax for the self-employed. Instead, your business income is subject to two distinct taxes: the federal self-employment tax and the standard Massachusetts income tax. This structure means you are responsible for paying both federal and state obligations on the income you generate.
Understanding Federal Self-Employment Tax
The federal self-employment tax is a levy consisting of Social Security and Medicare taxes for individuals who work for themselves. It is analogous to the FICA taxes that employers withhold from the paychecks of traditional employees. If you have net earnings of $400 or more from self-employment, you are required to pay this tax. The tax is calculated on Schedule SE, Self-Employment Tax, which is filed with your annual Form 1040 income tax return.
First, you determine your net earnings from self-employment, which is your gross business income minus ordinary and necessary business expenses. Then, you multiply this amount by 92.35% to find the portion of your earnings subject to the tax. This adjustment accounts for the deductible employer-equivalent portion of FICA taxes.
The self-employment tax rate is 15.3%. There is a 12.4% Social Security tax that applies to earnings up to an annual limit, which is $176,100 for 2025. The second component is a 2.9% Medicare tax that applies to all of your net earnings, with no income limit. An additional Medicare tax of 0.9% may also apply if your income exceeds certain thresholds.
How Massachusetts Taxes Self-Employment Income
Massachusetts taxes the profits from your business as regular income. For the 2025 tax year, the rate is 5.0% on most classes of income. In addition, a 4% surtax applies to annual income over $1 million. This means your net business profit is combined with your other income and taxed at the same rates as wages or salaries.
The starting point for determining your taxable business income in Massachusetts is your federal profit or loss calculation. You must first complete a federal Schedule C, Profit or Loss from Business, to report your business income and expenses. The resulting net profit from your federal Schedule C is then carried over to a Massachusetts Schedule C.
While the federal Schedule C profit is the basis, Massachusetts has its own set of rules and adjustments that can alter your final state taxable income. These differences are accounted for on the Massachusetts Schedule C. For instance, the state may not conform to all federal depreciation rules or may have specific provisions for certain types of business expenses.
Deductions and Adjustments
On your federal return, you can deduct one-half of the self-employment tax you paid. This is an “above-the-line” deduction taken on Schedule 1 of Form 1040, which lowers your federal adjusted gross income (AGI) and, consequently, your federal income tax liability.
Massachusetts treats this deduction differently. While the state does not allow you to deduct the full amount that is permitted on your federal return, it does provide a limited deduction. You are allowed to deduct the amount of federal self-employment tax you paid, up to a maximum of $2,000.
Most ordinary and necessary business expenses you claim on your federal Schedule C are also accepted by Massachusetts. Expenses for things like office supplies, business-related travel, and marketing reduce your net profit. For example, Massachusetts follows the federal rules for the home office deduction, allowing a simplified deduction of $5 per square foot up to 300 square feet, for a maximum of $1,500.
Paying Your Taxes Throughout the Year
Because taxes are not withheld from your self-employment income, you are responsible for paying them directly to the IRS and the Massachusetts Department of Revenue in periodic installments, known as estimated tax payments. For federal purposes, you are required to make these payments if you expect to owe at least $1,000 in tax for the year. You use Form 1040-ES to calculate and pay your estimated federal taxes.
Massachusetts requires estimated tax payments if you expect to owe more than $400 in state income tax for the year. The corresponding state form is Form 1-ES. Both the federal and state systems operate on a quarterly payment schedule, with due dates of April 15, June 15, September 15, and January 15 of the following year.
For federal taxes, you can pay online through IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by mail with the Form 1040-ES voucher. For Massachusetts, payments can be made electronically through the MassTaxConnect portal or by mail with the Form 1-ES voucher. Making timely estimated payments is important to avoid underpayment penalties.
Annual Filing Requirements
For federal purposes, a self-employed individual’s annual filing package includes Form 1040, U.S. Individual Income Tax Return, as the main form. Attached to it will be Schedule C, to report your business’s profit or loss, and Schedule SE, to calculate the self-employment tax due.
The state filing requirements mirror the federal process. In Massachusetts, you will file Form 1, the Massachusetts Resident Income Tax Return, or Form 1-NR/PY if you are a nonresident or part-year resident. You must also attach a completed Massachusetts Schedule C, which begins with the net income figure from your federal Schedule C and includes any state-specific adjustments.
The standard deadline for filing these annual returns and for making the final tax payment is April 15. If this date falls on a weekend or holiday, the deadline shifts to the next business day. If you need more time to prepare your returns, you can request an extension, but it only provides more time to file the forms, not to pay any taxes you owe.