This guide was developed to help individuals understand how and when to make estimated tax payments. Most personal income taxes are paid through payroll deductions from employee wages and salaries; however, some taxpayers receive taxable income, such as unemployment compensation or dividends and interest, that is not subject to withholding. Depending on how much of this type of income you receive and your anticipated tax liability, you may be required to make quarterly estimated tax payments during the year. We hope that you find this guide helpful and urge you to contact us directly if you need further assistance.
What are estimated tax payments?
Most people automatically pay taxes through withholding from their paychecks. If, however, you receive taxable income from which there is no withholding, you are still responsible for paying taxes on it to the Commonwealth on a regular basis. The quarterly tax payments you must make in these situations are called estimated taxes.
Any type of taxable income from which no tax was withheld is subject to estimated taxes. For example, you may be required to make estimated payments every quarter if:
- You are self-employed;
- You receive income from investments, pensions or other sources; or
- You receive unemployment insurance benefits from which no Massachusetts income tax was withheld. You may request that the Department of Unemployment Assistance (DUA) withhold Massachusetts tax from your unemployment insurance benefits. Contact DUA at 617-626-6800 for more information.
These requirements generally hold true for both residents of the Commonwealth and nonresidents who receive income from a Massachusetts source.
For information on nonresident income tax, pass-through entity or federal check-the-box rules, see 830 CMR 62.5A.1, Non-resident Income Tax; 830 CMR 62B.2.2, Pass-Through Entity Withholding or 830 CMR 63.30.3, Entity Classification under St. 2008, c. 173.
Should I be making estimated tax payments?
If you receive enough income during the year to owe more than $400 in Massachusetts income tax that isn't paid through withholding, then you must make estimated tax payments. You may be required to make these payments even if you do not make similar federal income tax payments.
This requirement applies to any taxable income. Some of the most common sources of income that require estimated taxes are:
- Dividends and interest, including interest from Massachusetts banks;
- Capital gains from the sale or exchange of assets such as property or businesses;
- Income from a trade, business, profession or partnership;
- Income or capital gains distributed from any estate or trust;
- Income from certain pensions;
- Rental income;
- Lottery or gambling winnings;
- Taxable Keogh or IRA distributions;
- Unemployment compensation from which no Massachusetts income tax was withheld, including benefits paid under a state's regular unemployment insurance program, extended benefits program, trade readjustment allowances and disaster unemployment assistance benefits; and
- Any other taxable income from which Massachusetts tax will not be withheld.
How do I make estimated tax payments?
You may make your estimated payments electronically through MassTaxConnect. If you use the online application, payment is made via Electronic Funds Withdrawal.
If you choose not to pay electronically, you must use the Department's Form 1-ES to make estimated payments and ensure that your payment is credited to your account. The 1-ES package includes payment vouchers, instructions and a worksheet to help you determine how much tax you owe.
Many people receive Form 1-ES from DOR if their prior year return shows they made or should have made estimated payments. Even if you receive personalized forms, you may take advantage of the online estimated tax application (the quickest method available for processing your estimated payment).
An alternative to making estimated payments is to request that your employer withhold additional amounts from your wages to cover the taxes due on other income. This request can be made on your Massachusetts Employee's Withholding Exemption Certificate (Form M-4).
When must I file?
Most people know early in the year if they are going to receive enough income to require estimated tax payments, so your first Form 1-ES must be filed on or before April 15 of that year. Generally, estimated tax payments are made in four equal installments due on:
April 15 - 1st installment
June 15 - 2nd installment
September 15 - 3rd installment
January 15 of the following year - 4th installment
You may pre-schedule your future estimated payments to be made automatically by Electronic Funds Withdrawal if you use the online estimated payment application.
You may check your quarterly payment history via MassTaxConnect, or by calling our main information lines at 617-887-MDOR or toll-free in Massachusetts at 800-392-6089.
Reminder: If you have a paid preparer file your annual income tax return, please be sure to provide him or her with all of your estimated tax payment information from the past year, including information on any 4th quarter payment made on or before January 15.
What if I receive unexpected income?
If you receive unexpected income too late in the year to meet the first payment deadline of April 15, you should spread out the total estimated tax you owe over the remaining payment dates and send a completed Form 1-ES with each payment to ensure that your account is properly credited.
Example: If you receive unexpected income between April 1 and May 31, you pay the estimated tax in three equal installments on June 15, September 15 and January 15 of the following year.
Example: If you receive unexpected income between June 1 and August 31, you pay the estimated tax in two equal installments on September 15 and January 15 of the following year.
Example: If you receive unexpected income after September 1, you pay the total estimated tax on January 15 of the following year.
What if I underpay my estimated tax?
Underpaying your estimated taxes will subject you to a penalty charge. If you would like to obtain information on this penalty, please visit DOR's website, or call our main information lines at 617-887-MDOR or toll-free in Massachusetts at 800-392-6089.
Are there any exceptions to this penalty?
A penalty is not imposed if:
- you paid at least 80 percent of your total current year tax liability, through withholding and estimated payments, on or before the installment due dates;
- your current year income tax due after credits and withholding is $400 or less;
- you were a resident of Massachusetts for 12 months and not liable for taxes in the previous tax year;
- your estimated payments and withholding equal or exceed your previous year's tax liability (where your taxable year was 12 months long) and a return was filed; or
- you are a qualified farmer or fisherman who files and pays in full with your return by March 1 of the following year. To qualify, your gross income from farming or fishing must be at least two-thirds of your annual gross income.
Example: If you owe a total tax of $2,000 and have paid $1,600 of it - or 80 percent - through withholding, then the $400 may be paid with your income tax return by April 15, and no underpayment penalty is due.
Example: If last year your total tax was $1,500 (and your taxable year was 12 months long), and this year your total tax is $2,500 and you made estimated payments totaling $1,500, then the additional $1,000 of tax you owe will not be subject to an underpayment penalty if you pay it with your income tax return by April 15 and attach a Form M-2210, Underpayment of Massachusetts Estimated Income Tax.
The purpose of this publication is to provide taxpayers with general information about Massachusetts tax laws and Department of Revenue policies and procedures as of January 9, 2017. It is not designed to address all questions in detail, and taxpayers are encouraged to seek further guidance as described throughout this guide. Nothing contained within this publication supersedes, alters or otherwise changes any provisions of Massachusetts General Laws, Massachusetts Department of Revenue Regulations or Rulings or any other sources of the law.