Why Did My Massachusetts Income Tax Increase?

Seeing a higher Massachusetts income tax bill than expected can be frustrating, especially if your earnings haven’t changed significantly. Several factors could contribute to the increase, from policy changes to shifts in your financial situation.

Understanding why your tax liability has gone up requires looking at adjustments in state tax rates, deductions, and potential surcharges. Changes in residency status, employer withholdings, or new income sources may also have played a role.

Recent Adjustments to State Tax Rates

Massachusetts voters approved a tax change in 2022 that took effect in 2023, altering the state’s flat income tax system. Previously, all taxable income was subject to a uniform 5% rate, but a new surtax created a two-tiered structure. Income exceeding $1 million is now subject to an additional 4% tax, raising the rate to 9% for earnings above that threshold. This “millionaire’s tax” was implemented to generate revenue for education and transportation funding.

While this surtax affects high earners, the base tax rate for all taxpayers was lowered from 5% to 4.5% in 2024 as part of a tax relief package. The reduction was intended to ease the burden on middle-income taxpayers, but for those with substantial capital gains or other taxable income, overall tax liability may still have increased.

Changes to Deductions and Credits

Massachusetts has updated several deductions and credits that may have affected your tax bill. One major change is the increase in the state’s child and dependent tax credit, which rose to $440 per dependent in 2024, up from $240. This benefits families, but those who relied on other deductions that have been reduced or eliminated may have seen their tax liability increase.

The rental deduction was expanded, allowing renters to deduct up to $4,000 of their annual rent payments, an increase from the previous $3,000 limit. Homeowners, however, may not have received similar relief if they relied on property tax deductions. The Senior Circuit Breaker Tax Credit, which helps elderly homeowners and renters with high property tax burdens, was also expanded.

Some deductions have been capped or phased out. The state now limits the student loan interest deduction to $2,500 in 2024, aligning with federal tax rules. This primarily affects those with significant student debt. Meanwhile, the Earned Income Tax Credit (EITC) was increased to 40% of the federal credit, benefiting lower-income workers but offering no relief to middle- and upper-income earners.

Surcharges for Certain Types of Earnings

Massachusetts imposes additional taxes on specific types of income, which may have contributed to an unexpected increase in your tax bill. Short-term capital gains—profits from selling assets held for one year or less—are taxed at 12%, significantly higher than the standard income tax rate. This impacts individuals who frequently trade stocks, flip real estate, or sell other assets quickly.

Certain investment income is also taxed at higher rates. Gains from collectibles, such as rare coins, art, or antiques, are taxed at the same 12% rate as short-term capital gains. Investors who deal in these asset classes may not have realized the tax implications.

Self-employed individuals and independent contractors face additional tax burdens due to Massachusetts’ self-employment tax obligations. Unlike W-2 employees, who have payroll taxes withheld by their employer, self-employed individuals must pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3% on net earnings. While some of this can be deducted for federal tax purposes, Massachusetts does not offer a corresponding deduction, meaning the full amount remains taxable at the state level.

Filing Status or Residency Shifts

A change in filing status or residency can significantly impact your Massachusetts income tax liability. If you recently switched from filing jointly to filing separately, or vice versa, the way your taxable income and deductions are calculated may have changed. Massachusetts does not always align with federal filing status rules, meaning some deductions or credits available at the federal level may be limited or unavailable at the state level.

State residency is another major factor. Massachusetts taxes residents on all income, regardless of where it is earned, while nonresidents are only taxed on income sourced from within the state. If you moved from a state with no income tax, such as Florida or Texas, or from a state with lower tax rates, your overall tax burden may have increased. Conversely, if you relocated out of Massachusetts but still earn income from sources within the state—such as wages from a Massachusetts employer or rental income from property located in the state—you may still owe nonresident taxes.

Employer Withholding Alterations

Even if your salary has remained the same, changes in how your employer withholds state income taxes could explain an increase in your tax liability. Employers use withholding tables provided by the Massachusetts Department of Revenue to estimate how much tax to deduct from each paycheck. If these tables were adjusted or if you updated your Form M-4 (the state equivalent of the federal W-4), your withholdings may have been insufficient, leading to a higher tax bill when filing.

Massachusetts updated its withholding guidance in response to recent tax law changes, including the reduction of the standard income tax rate and the implementation of the surtax on high earners. If your employer did not adjust withholdings accordingly, you may have underpaid throughout the year. Additionally, if you claimed too many exemptions or allowances on your M-4, less tax would have been withheld, resulting in a larger balance due at tax time. Employees who received bonuses, commissions, or other supplemental income may also have been affected, as these payments are often subject to a flat withholding rate that may not align with actual tax liability.

Additional Income Sources

If you earned income beyond your regular wages, this could have pushed you into a higher tax bracket or subjected you to additional taxes. Massachusetts taxes various forms of income, including freelance work, rental earnings, and investment profits, each with distinct tax implications.

Self-employment income is fully taxable at the state level and does not have automatic withholdings like traditional wages. If you did not make estimated tax payments throughout the year, you may owe a larger sum when filing. Rental income from Massachusetts properties is also taxable, and deductions for expenses such as maintenance and depreciation must be carefully documented to minimize liability. Investment income, including dividends and capital gains, can contribute to a higher tax bill, particularly if you realized significant gains from stock sales or other asset disposals.