What Are the Taxes in Massachusetts?

Massachusetts employs a multi-layered tax system to fund public services, encompassing levies on income, consumption, and property. Understanding these different tax obligations is a fundamental aspect of personal and business financial management within the Commonwealth.

Massachusetts Income Tax

Massachusetts imposes a personal income tax on its residents and on income earned within the state by non-residents. Anyone with a Massachusetts gross income of $8,000 or more is required to file a state income tax return. This requirement applies to each individual, meaning married couples can file jointly or separately.

The state’s personal income tax rate is a flat 5% for most types of earned and unearned income, including salaries, wages, tips, and interest. A feature of the state’s tax code is the Fair Share Amendment, which took effect in 2023. This constitutional amendment adds a 4% surtax on annual taxable income that exceeds a high-income threshold, which is adjusted annually for inflation.

For example, if the inflation-adjusted threshold for a given year is $1,083,150, an individual with a taxable income of $1.5 million would pay the standard 5% on the first $1,083,150. They would then pay a combined 9% (5% base rate + 4% surtax) on the additional $416,850.

While most income falls under the 5% flat tax, certain types of income are treated differently. Short-term capital gains from assets held for one year or less are taxed at a higher rate of 8.5%. Some specific classes of long-term capital gains, such as those from collectibles, are taxed at 12%.

Taxable income in Massachusetts broadly includes wages, salaries, tips, interest, dividends, and profits from capital gains. Unlike the federal system, Massachusetts does not have a standard deduction; instead, it offers personal exemptions based on filing status, such as $4,400 for a single filer. Taxpayers may also claim deductions for 50% of rent paid up to a maximum of $4,000, certain dependent care costs, and contributions to a college savings plan.

State Sales and Use Tax

Massachusetts levies a statewide sales tax of 6.25% on the purchase or rental of most tangible personal property and certain services. This rate is consistent across the state, as there are no additional local sales taxes. The tax is collected by the vendor at the point of sale and remitted to the state.

The sales tax has several significant exemptions, including:

• Most food items intended for home consumption (groceries)
• Individual articles of clothing and footwear priced at $175 or less
• Prescription drugs and medical devices
• Newspapers and magazines

For an article of clothing that costs more than $175, the sales tax is only applied to the amount exceeding that threshold.

Complementing the sales tax is the use tax, set at the same 6.25% rate. The use tax applies to taxable items purchased outside of Massachusetts for use within the state on which no or a lower sales tax was paid. For instance, if a resident buys furniture in a state with no sales tax and brings it home, they must pay the 6.25% use tax to the Massachusetts Department of Revenue. A credit may be available for sales tax paid in another state.

Local Property Tax

Property taxes in Massachusetts are assessed and collected by individual cities and towns to fund local services like public schools and police departments. Because each municipality sets its own tax rate, the amount of property tax paid can vary significantly from one community to another.

The tax is calculated by multiplying a property’s assessed value by the local tax rate. Local assessors determine the assessed value, which reflects the property’s fair market value, while the municipality sets the rate to cover its budget.

A feature of the state’s property tax landscape is a law known as Proposition 2 ½. This law limits how much a municipality’s property tax revenue can increase. A community’s total annual property tax levy cannot rise by more than 2.5% over the previous year’s limit, excluding new construction. The total tax levy also cannot exceed 2.5% of the total assessed value of all taxable property in the community.

Communities can raise taxes beyond the 2.5% annual increase through a voter-approved measure called an override, which permanently increases the municipality’s levy limit. Homeowners may also be eligible for certain exemptions to reduce their tax bills, such as those for seniors or veterans, or they can file for an abatement if they believe their property has been overvalued.

Massachusetts Estate Tax

Massachusetts is one of the states that imposes its own estate tax. A Massachusetts estate tax return must be filed if the total value of a decedent’s gross estate exceeds $2 million. This filing threshold is considerably lower than the federal estate tax exemption, making the state-level tax a relevant consideration for many estates.

For deaths on or after January 1, 2023, the tax is levied only on the value of the estate that exceeds the $2 million exemption. This change eliminated a previous rule where an estate valued just over the threshold would have its entire value subject to tax.

The tax is progressive, with marginal rates ranging from 7.2% to a maximum of 16% for the largest estates. Assets left to a surviving spouse or qualified charitable organizations are deductible from the estate’s value before the tax is calculated.

The gross estate includes all property the decedent owned or controlled at death, such as:

• Bank accounts
• Real estate
• Investments
• Retirement accounts

For a resident’s estate, the value of real and tangible personal property located outside of Massachusetts is included when determining if the $2 million filing threshold is met. However, the final tax owed is apportioned so that it only applies to the share of the estate located within the Commonwealth.

Other Common Taxes

Beyond broad-based taxes, Massachusetts residents encounter several other specific excise taxes. The gasoline excise tax is a flat tax of 24 cents per gallon. Revenue from this tax funds the state’s transportation infrastructure, such as roads and bridges.

The statewide sales tax on meals is 6.25%. Cities and towns can also impose a local-option meals tax of 0.75%, bringing the total tax on restaurant meals to 7% in those communities.

The motor vehicle excise tax is an annual tax levied by the municipality where a vehicle is garaged. The tax is calculated at a rate of $25 per $1,000 of a predetermined value. This valuation is based on a formula that depreciates the manufacturer’s suggested retail price over a set schedule, starting at 90% in the year of manufacture and decreasing to 10% for the fifth and subsequent years.