- General Rules
- Allocation of Schedule B Income - 5.3% and 12%
- Optional Tax Rate of 5.85%
- Massachusetts References
- Prior Law, History of Tax Rates
General Rules
The personal income tax rates apply to the following taxpayers:
- 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 2012, 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 5.25%. 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 5.25%. 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 5.25%. 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
2005 Change for Tax Rate Beginning Tax Year 2003:
For tax years beginning on or after January 1, 2003, in place of the existing six categories of gain based on six defined holding periods and taxed at six different rates (ranging from 5% down to 0%), the Massachusetts tax rate on Schedule D long-term capital gains is the same rate provided for on Form 1, Line 10 or 1-NR/PY, Line 12 income, 5.25%.
2002 Change for Tax Rate Beginning Tax Year 2002:
For tax years beginning on or after January 1, 2002, the Massachusetts tax rate on Schedule B interest and dividend income, as well as Form 1, Line 10 or 1-NR/PY, Line 12 income has been reduced from 5.3% to 5.25%. The scheduled tax rate reduction to 5.0% in 2003 has been repealed. Depending on economic conditions, the tax rate on Schedule B interest and dividend income, as well as Form 1, Line 10 or 1-NR/PY, Line 12 income may decrease for future tax years.
Allocation of the 5.25% and 12% Tax Rates for Taxable Schedule B Income:
Schedule B taxable income will be taxed at the rate of 5.25% 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 5.25% income.
Optional Tax Rate of 5.85%
Taxpayers have the option to pay a higher tax rate on certain types of income. Taxpayers may pay 5.85% as opposed to 5.25% on the following types of income:
- 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) as amended by St. 2005, c. 163, ss. 57 and 57A; as amended by St. 2004, c. 149, ss. 413 and 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