Tax Rates

• General Rules
• Allocation of Schedule B Income - 5.30% and 12%
• Optional Tax Rate of 5.85% 
  
  
• Massachusetts References
• Prior Law, History of Tax Rates 

• residents are taxed on their taxable income;
• nonresidents are taxed, to the extent specified in Chapter 62, Section 5A on their taxable income;
• corporate trusts are taxed to the extent specified in section eight on their taxable income;
• estates and trusts are taxed to the extent specified in sections nine through sixteen.

For tax year 2009, the rates on taxable income are as follows:

• capital gains reported on Massachusetts Schedule B is 12%.  Gains included are:
  
  
  • current year short-term capital gains (including collectibles);
  • long-term capital gains on collectibles and pre-1996 installment sales; and
  • gains on the sale of property used in a trade or business (4797 property) held for one year or less.
    
    
• interest and dividends reported on Massachusetts Schedule B is 5.3%.  Interest income excluded from Schedule B because it is reported on Form 1 or Form 1-NR/PY is:
  
  
  • interest from savings deposits in Massachusetts banks; and
  • interest from loans made by pawn brokers.

Note: Unlike Massachusetts bank interest where $100 or $200 may be excluded, the entire amount of Schedule B interest is taxed.

• Form 1, Line 10 or 1-NR/PY, Line 12 income, which is Massachusetts gross income not included in Schedule B or Schedule D income, is 5.3%. Interest income included in Form 1, Line 10 or 1-NR/PY, Line 12 is:
  
  
  • interest from savings deposits in Massachusetts banks; and
  • interest from loans made by pawn brokers.
    
    
• long-term capital gains reported on Massachusetts Schedule D is 5.3%. Capital Gains excluded from Schedule D because they are reported on Schedule B are:
  
  
  • long-term capital gains from collectibles; and
  • long-term capital gains from pre-1996 installment sales.
    
    

• capital gains excluded from Schedule D because they are reported on Schedule D-IS are:
  
  

  • long-term capital gains from installment sales occurring between January 1, 1996 and December 31, 2002.
  • long-term capital gains reported on Massachusetts Schedule D-IS from installment sales occurring between January 1, 1996 and December 31, 2002 is the rate that was applicable when it was sold 
      

Allocation of the 5.3% and 12% Tax Rates for Taxable Schedule B Income:
Schedule B taxable income will be taxed at the rate of 5.3% to the extent it does not exceed Schedule B interest and dividends, (before any deductions or exemptions are applied). Any remaining taxable income (i.e., any portion which exceeds Schedule B interest and dividends), will be taxed at the rate of 12%. In effect, Schedule B deductions and exemptions are first allocated to 12% income and then, if any deductions or exemptions remain, to 5.3% income.

Note:  The scheduled tax rate reduction for tax years beginning on or after January 1, 2003 from 5.3% to 5% has been repealed. Depending on economic conditions, the tax rate for this income may be decreased in future years.

• Form 1 or 1-NR/PY income after exemptions - Form 1, Line 19 or 1-NR/PY, Line 23;
• Schedule B interest and dividend income - Form 1, Line 20 or 1-NR/PY, Line 24;
• Schedule D net long-term capital gains - Schedule D, Line 20
  The election to pay tax at the rate of 5.85% does not apply to items of income taxed at 12% (short-term capital gains and gains on collectibles and pre-1996 installment sales.)
   

• M.G.L. Chapter 62, Section 4 as amended by St. 2000, c. 343, s. 1; as amended by St. 1999, c. 127, ss. 73-75 and ss. 372-374; as amended by St. 1998, c. 175 and c. 396
• M.G.L. Chapter 62, Section 4(a) as amended by St. 1998, c. 175, s. 16 and c. 396, s. 2.
• M.G.L. Chapter 62, Section 4(b) as amended by St. 2002, c. 186, s. 13.
• M.G.L. Chapter 62, Section 4(c) most recently amended by St. 2005, c. 163, ss. 57, 57A; as amended by St. 2004, c. 149, ss. 413, 414; as amended by St. 2002, c. 186, s. 14; as amended by St. 1999, c. 127, s. 77; as amended by St. 1999, c. 127, ss. 278 - 280
• M.G.L. Chapter 62, Section 3 as amended by St. 2002, c. 300 s.44
• 830 CMR 62.4.1: Capital Gains and Losses
• E. Joel Peterson, et al. v. Commissioner of Revenue, 441 Mass. 420 (2004) (“Peterson I”).
• E. Joel Peterson, et al. v. Commissioner of Revenue, 444 Mass. 128 (2005) (“Peterson II”)
• TIR 05-20: Lower Capital Gains Tax Rates for All of Tax Year 2002; New Capital Gains Tax Rate Beginning on January 1, 2003
• TIR 05-13: Peterson v. Commissioner of Revenue; Tax Year 2002 Capital Gains Tax Rate (modified and superseded in part by TIR 05-20 )
• TIR 04-25: Effect of Recent Legislation on the Personal Income Tax, Withholding of Tax, and the Declaration of Estimated Tax by Individuals
• TIR 02-21: Capital Gains and Losses: Massachusetts Tax Law Changes
• TIR 02-18: Tax Changes Contained in "An Act Enhancing State Revenues" and Related Acts
• DD 06-2: Supplement to TIR 05-20; Peterson Abatement Applications Involving Pass-through Entities