Overview - Pensions

Generally, distributions from pension or annuity plan are subject to Massachusetts withholding if they are subject to federal withholding. There is no withholding, however, on any part of a distribution that is not expected to be includible in the recipient's taxable Massachusetts income. Any portion of a distribution that the recipient could exclude from income because it represents either the employee's nondeductible contributions to the plan or the annuitant's investment in the contract is not subject to withholding. The amount of the distribution that is taxable in Massachusetts will differ from the federal taxable amount if the Massachusetts treatment of contributions differs from federal treatment.

Responsibilities of a trustee or administrator of a pension or annuity plan subject to Massachusetts withholding:
 


Overview - Wages

"Withholding" refers to income tax withheld from wages by employers to pay employees' personal income taxes. An employer is required by law to withhold Massachusetts personal income tax from the wages of residents for services performed either within or outside Massachusetts, and from the wages of nonresidents for services performed in Massachusetts.

An " employer" is any person, corporation or organization for whom an individual performs a service as an employee. An employer may be an individual, corporation, partnership, estate, trust, association, joint venture or other unincorporated organization. Religious, educational, charitable and social organizations also may be employers. Employers are responsible for collecting and remitting employee withholding to the Commonwealth. An " employee" is anyone who performs services for another person or organization under the direction and control of that person or organization. The relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the details and manner in which the job is to be accomplished.

Responsibilities of an employer:
 

  • Registering with DOR to collect withholding taxes;
  • Withholding state income taxes from employees who reside or are employed in Massachusetts and remitting those taxes, along with the appropriate form, on time;
  • Obtaining from each employee a completed Form W-4, Employee's Withholding Allowance Certificate and Form M-4, Massachusetts Employee's Withholding Exemption Certificate ;
  • Reporting to DOR, within 14 days of hire or reinstatement, all newly hired employees, employees returning to work after 30 days or more off the payroll, and independent contractors who will be earning $600 or more. Reports may be made via DOR's Online New Hire Reporting System. Employers may submit paper reports on FORM NHR, New Hire and Independent Contractor Reporting. pdf format of New Hire Reporting Form Send completed forms to DOR by fax at 617-376-3262, or mail to Department of Revenue, PO Box 55141, Boston, MA 02205-5141. Form NHR is available on DOR's website at www.mass.gov/dor.
    This information is matched to DOR's database of individuals required to pay child support. When a newly hired employee or independent contractor has a child support obligation, DOR notifies the employer to withhold child support and remit the funds to DOR for distribution to families entitled to support. Employers must remit these funds within three business days of the payroll date. The information also is used to combat fraud in programs run by various state and federal agencies;
  • Filing quarterly reports of wages paid to each employee who resides or is employed in Massachusetts. Note: Starting with the 4th quarter 2009, responsibility for collecting wage reporting data has been transferred to the Department of Unemployment Assistance (DUA). Employers, including employers who do not have Unemployment Tax obligations, must file their Quarterly Wage Reports via DUA's QUEST system beginning in January 2010. Visit www.mass.gov/uima for more information.
  • Providing each employee with a Form W-2, Wage and Tax Statement by January 31, or within 30 days if employment terminates before the close of the calendar year, showing the total amount of wages paid, the total Social Security and Medicare taxes withheld, and the amount of federal and Massachusetts income tax withheld for the prior year;
  • Contacting the Massachusetts Department of Unemployment Assistance to fulfill the obligations for state employment security taxes. The telephone number for unemployment insurance information is 617-626-5075; and
  • Contacting the Internal Revenue Service (IRS) to fulfill obligations for withholding federal income taxes as well as Social Security and Medicare taxes. For more information, call the IRS toll-free at 800-829-1040.

Registration:

In order to register, complete our online registration accessible from our home page. Businesses that register on or after September 1, 2003 must file returns and pay taxes electronically, regardless of the amount of their annual tax liability.

Previously registered businesses with combined annual withholding, sales/use tax (including sales taxes on meals and telecommunications services) and room occupancy excise liabilities of $10,000 or more are required to file returns and make payments electronically.

 


Calculation of Tax - Pensions

The amount of income tax withheld is based on the taxable portion of the distribution, the number of exemptions claimed, and any additional withholding amounts requested on Form M-4P, Massachusetts Withholding Exemption Certificate for Pension, Annuity, and Other Periodic Payments and Nonperiodic Payments . Withholding tax is calculated by using a mathematical formula known as the Massachusetts Income Tax Withholding System Percentage Methods for Pension, Annuity, Other Periodic Payments and Nonperiodic Payments. This percentage method is explained in Circular M, Massachusetts Income Tax Withholding Tables .


Calculation of Tax - Wages

The amount of income tax withheld is based on the employee's taxable wages, the number of exemptions claimed, and any additional withholding amounts requested on Form M-4, Massachusetts Employee's Withholding Exemption Certificate . In addition to adjusting for exemptions, a deduction from taxable wages for the amount an employee contributes to Social Security, Medicare, Massachusetts, United States or Railroad Retirement systems, during a payroll period, is permitted. However, because the maximum deduction is limited to $2000 annually, once the maximum deduction allowed has been exhausted, there will be a proportionate increase in Massachusetts income tax withholding.

Withholding tax is calculated either by using the tax tables available from DOR or by using a mathematical formula commonly known as the percentage method. These methods are explained in Circular M, Massachusetts Income Tax Withholding Tables .

 


Payment of the Withholding Tax - Pensions

Administrators and trustees of pension plans, annuities and retirement distributions must electronically pay and file withholding tax.

Payment frequency - If the total Massachusetts income tax withheld for the calendar year will be:
 

  • $100 or less, payment is due with the annual return by January 31 st of the following year;
  • Between $100 and $1,200, payments are due quarterly on the last day of the month following the calendar quarter;
  • Between $1,200 and $25,000, payments are due monthly by the fifteenth day of the following month;
  • More than $25,000, payments are due within three business days after $500 or more has been withheld by the 7th, 15th, 22nd and/or the last day of the month.

Tax return filing frequency - In all cases, an annual return, reconciling the previously made payments, is due by January 31 of the following year.

 


Payment of the Withholding Tax - Wages

Employers must complete and remit the appropriate withholding tax return to DOR, with payment in full, on or before the due date.

Filing frequency and payment requirements: Different schedules must be followed for filing and paying withholding tax depending on the amount of tax employers withhold from their employees in a year. Filing and payment requirements based on annual collections:
 

  • $100 or less: Payment and return due annually by the last day of the month following the calendar year;
  • $101 to $1,200: Payment and return are due quarterly by the last day of the month following the calendar quarter;
  • $1,201 to $25,000: Payment and return are due monthly by the 15 th day of the following month. Exception: for the third month of each calendar quarter (March, June, September, and December), payments are due by the last day of the following month; or
  • Over $25,000: When Massachusetts income last day of month following tax withheld is $500 or more, by the 7th, 15th, 22nd and last day of a month, payment is due within three business days. Tax return is quarterly due on or before the last day of month following the close of the each calendar quarter.

Return Filing Methods:
 Business Telefile, or appropriate form from the Form M-941/942 series .

Payment Methods:
Electronically (ACH Credit or ACH Debit) or by check.

Electronic Filing And Payment Requirements:
Businesses that register on or after September 1, 2003 must file returns and pay taxes electronically, regardless of the amount of their annual tax liability.

Previously registered businesses with combined annual withholding, sales/use tax (including sales taxes on meals and telecommunications services) and room occupancy excise liabilities of $10,000 or more are required to file returns and make payments electronically.

Please see Business Options: Electronic Filing and Payment Programs for more information on the various electronic payment and filing options.


Abatements/Amended Returns - Withholding

When an employer determines that withholding tax was overpaid as a result of a reporting error, the employer may file a Massachusetts Form CA-6 (PDF) - Application for Abatement / Amended Tax Return and attach proper documentation to receive a refund of the tax. If the amount of overpayment was withheld from the employee, the employer must show that the amount has first been repaid to the employee or to the appropriate tax jurisdiction if other than Massachusetts.

Businesses required to file electronically must file Applications for Abatement/Amended Returns electronically.

 


Documentation to Submit with Abatement/Amended Tax Return:

In all cases, an employer must provide a clear explanation of the exact nature of the error and provide supporting documentation, including any Forms W-2c issued. If the amount of overpayment was withheld from the employee, the employer must show that the amount has first been repaid to the employee or to the appropriate tax jurisdiction if other than Massachusetts. See below for certain common errors and required documentation related to those errors.

 

  • Employee Check Never Issued or Issued In Error and then Voided
    If an employer incorrectly reported withholding tax on a check that was not issued to an employee or was issued in error and then voided, the employer must provide the payroll report for the period in question. The payroll report should list all payroll entries, including reversing/adjusting entries, for the period in question.

 

  • Incorrect Reporting of Withholding Tax to Massachusetts Instead of Another State
    If an employer incorrectly reported withholding tax to Massachusetts instead of another state, the employer must provide:
    1. Name and Social Security Number of affected employee(s)
    2. Explanation of nature and location where duties of the employee(s) are performed and legal residency of the employee (s)
    3. Copy of the amended return filed with the other state and any Forms W-2C issued

 


Massachusetts References: