What Is Massachusetts Withholding Tax & How It Works

Massachusetts withholding tax is a system for paying state income taxes in advance. Employers collect these taxes directly from employee wages over the course of the year and send the funds to the Massachusetts Department of Revenue (DOR). The money is used to finance state government operations and services. This process involves cooperation between the employee, the employer, and the DOR.

Determining Employee Withholding Amount

An employee controls their state tax withholding through the Massachusetts Employee’s Withholding Exemption Certificate, Form M-4. This document communicates to an employer the specific amount of tax to withhold from a paycheck. On this form, employees claim exemptions for themselves, their spouse, and any dependents, which reduces taxable income.

Claiming more exemptions results in less tax being withheld from each paycheck, which increases an employee’s net pay. Conversely, claiming fewer exemptions increases the tax withheld, leading to a smaller paycheck but potentially a larger tax refund or smaller tax liability at year-end. It is the employee’s responsibility to update their Form M-4 when life events, such as marriage or the birth of a child, alter their exemption status.

Employees can obtain a blank Form M-4 from the Massachusetts Department of Revenue website. An employee can also choose to have an additional flat dollar amount withheld from each check to cover other income sources.

Core Employer Obligations

Any business paying wages for services in Massachusetts must register with the Department of Revenue to establish a withholding account. This requirement applies to employers who maintain an office or transact business within the state. Registration is completed electronically through the DOR’s online portal, MassTaxConnect.

Employers have a legal duty to calculate and withhold the correct amount of state income tax from each employee’s pay. The calculation is determined by the employee’s completed Form M-4 and the official withholding tables published by the DOR.

Wages subject to withholding include nearly all forms of employee compensation, such as regular salaries, hourly pay, bonuses, and commissions. The state income tax rate is 5.00% for 2025, with a 4% surtax on annual income over $1,083,150.

Employer Reporting and Payment Schedules

Employers must remit withheld funds and report the activity to the state. The frequency of these obligations is determined by the total amount of tax an employer expects to withhold over the year, resulting in a quarterly or monthly payment schedule. Employers use Form M-941, the Employer’s Return of Income Taxes Withheld, to reconcile total wages paid, tax withheld, and payments made. Most businesses are required to file returns and make payments electronically through the MassTaxConnect portal.

At the end of the calendar year, employers must file an annual report summarizing the total income tax withheld from all employees. This is done while also providing each employee with their Form W-2, which details annual earnings and taxes withheld. This reconciliation ensures the total amount paid by the employer to the DOR matches the amounts on all employee W-2 forms.