- Basic Definitions and Employer Responsibilities
- Information Employers Must Obtain from Employees
- How to Calculate Withholding from Wages
- Filing and Payment Information
- Reporting and Retaining Employee Wage and Withholding Information
This publication contains general information regarding withholding of Massachusetts income tax from wages. It is designed to inform you, as an employer, of the basics of collecting and remitting employee withholding to the Massachusetts Department of Revenue (DOR).
Written in a straightforward question and answer format, this guide defines basic withholding terminology, outlines an employer's responsibilities and explains the methods of calculating the proper amount of withholding.
Please note that Massachusetts uses federal legal definitions for many basic withholding concepts such as "employer" and "employee." The descriptions of basic terms provided here are not comprehensive. Any complex definitional questions must be resolved in accordance with federal rules.
This guide is part of an ongoing series of publications designed to keep the public informed about Massachusetts tax law. If you have further questions about the withholding of income tax, please call the Department's Customer Service Bureau at 617-887-MDOR or toll-free in Massachusetts at 800-392-6089.
The Department is pleased to offer Massachusetts employers access to a number of useful resources via its website. The website contains information on various tax and employer obligations, as well as electronic filing and payment options. WebFile for Business allows employers to file and pay all of their Massachusetts payroll taxes, as well as report their new hires to the Department electronically.
What is withholding?
Withholding refers to income tax withheld from wages by employers to pay employees' personal income taxes. As an employer, you are 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.
Who is an employer?
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.
Who is an employee?
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.
Is the owner of a business considered an employee?
As a general rule, the owner of a sole proprietorship is not considered an employee for withholding purposes even if he or she has no other employees. Therefore, the owner would not register for withholding solely to pay his or her own taxes.
However, if an owner expects to owe more than $400 in Massachusetts income tax on the income received from the business, he or she is required to make individual estimated income tax payments.
For more information on individual estimated income tax payments, refer to the WebFile for Income section of the DOR website; DOR's Estimated Income Tax Payment Voucher (Form 1-ES Instructions ; or DOR's guide entitled, Should You Be Paying Individual Estimated Taxes?
What are the responsibilities of an employer?
An employer is responsible for:
- 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 or electronic return, on time. (Please refer to the section entitled, "How to Calculate Withholding from Wages.")
- Obtaining from each employee a completed Employee's Withholding Allowance Certificate (Form W-4) and Massachusetts Employee's Withholding Exemption Certificate (Form M-4).
- Reporting New Hires: 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 WebFile for Business. Employers who employ 25 or more employees throughout the year are required to report new hire information electronically. Employers with fewer than 25 employees may submit paper reports on New Hire and Independent Contractor 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.
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. This filing is done online through the Massachusetts Department of Unemployment Assistance's QUEST program.
- Providing each employee with a Wage and Tax Statement (Form W-2) 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 to fulfill the obligations for state employment security taxes. The telephone number for unemployment insurance information is 617-626-5075.
- 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.
How does an employer register to collect withholding?
Employers must register to collect Massachusetts withholding taxes online through DOR's WebFile for Business application.
Must a tax-exempt organization collect withholding?
Yes. Tax-exempt organizations such as religious and government organizations are required to withhold income tax from employees.
Is a Massachusetts employer required to withhold state income tax from an employee who is a nonresident?
Yes. Withholding is required on wages paid to nonresidents that are attributable to services performed in Massachusetts. However, if a nonresident does not work in Massachusetts, even if he or she is paid from a Massachusetts office, withholding is not required.
Example: Michael is single, lives in Nashua, New Hampshire and works in Massachusetts. His Massachusetts employer withholds the appropriate amount of Massachusetts income tax from his paycheck and remits it in full to DOR. Michael files a nonresident income tax return in Massachusetts.
Is a non-Massachusetts employer required to withhold state income tax from wages for a Massachusetts resident?
If the non-Massachusetts employer conducts business or maintains an office in Massachusetts, the employer must deduct and withhold from wages the amount determined for Massachusetts income tax purposes, less any amount deducted and withheld for the employer's state. If there is no state withholding in the home state of the business, the employer withholds and remits the full amount determined for Massachusetts. Whether the employee works on the road, at home or in an office maintained by the employer does not affect the employer's withholding obligation.
A non-Massachusetts employer is not required to withhold if its only Massachusetts connection is the employment, outside Massachusetts, of a Massachusetts resident. The employer may withhold for the convenience of the employee if both employer and employee agree. The employee will owe Massachusetts income tax if the employer does not withhold state income taxes.
Example: Susan is single, lives in Springfield, Massachusetts, and works in Connecticut, where she earns $450 a week. The employer, which also has offices in Massachusetts, withholds $5.08 from her paycheck each week for Connecticut income taxes. Since Susan would have had $17.41 withheld from her weekly paycheck had she worked in Massachusetts, her employer withholds and remits an additional $12.33 to DOR.
Must an employer withhold on wages for Massachusetts if federal withholding is not required?
No. Generally, for employers, DOR follows the IRS guidelines for persons subject to withholding. If there is no requirement to withhold federal income tax because of the type of income, there is no requirement to withhold Massachusetts income tax
In particular, withholding by household (domestic) employers is not required. However, domestic employers still are required to withhold Social Security tax from household employees. For more information about these requirements, contact the Internal Revenue Service toll-free at 800-829-1040. Household employers also should contact the Department of Unemployment Assistance at 617-626-5075 for information on their obligations for state unemployment taxes.
As a convenience to their employees, domestic employers do have the option to withhold federal and state income tax. Withholding income tax from wages may relieve domestic employees from having to pay estimated taxes. The Department has developed the Household Employment Tax Guide to provide household employers with the information they need to fully understand their obligations when hiring household help.
Are pension, annuity and other similar payments subject to withholding?
Yes. Payments of pension, annuity and other similar payments made to Massachusetts residents who have not elected to be exempt from U.S. income tax withholding are subject to Massachusetts income tax withholding.
Are lump sum and eligible rollovers from qualified pension and annuity plans subject to withholding?
Generally, lump sum and eligible rollovers that are subject to federal withholding also are subject to Massachusetts withholding, unless such distributions are of a type that would never be subject to Massachusetts personal income taxation. For more information, please see TIR 02-18, Tax Changes Contained in , or TIR 93-3, Massachusetts Income Tax Withholding on Eligible Rollover Distributions from I.R.C. s.401 Qualified Plans and s.403(b) Annuities.
How are such pension and annuity withholdings reported and paid?
The trustee or administrator of the pension or annuity plan must register with DOR online through WebFile for Business, using the plan's federal tax identification number and checking the appropriate box. Generally, a plan is required to obtain its own Federal Identification Number. Recipients of payments are required to file a Massachusetts Withholding Exemption Certificate for Pension, Annuity and Other Periodic Payments and Nonperiodic Payments (Form M-4P) with the trustee or administrator of the plan. Returns are due annually, and payments with the same frequency as wage withholding. (An annual report is required from each payer registered to withhold, whether or not the payer withheld Massachusetts taxes during the calendar year.) Returns and payments must be made electronically. Please see the "Filing and Payment Information" section of this guide for payment requirements.
Do special rules apply to employees of interstate motor and rail carriers?
Yes. Interstate rail and motor carrier employers are required to withhold Massachusetts income tax from their workers who are Massachusetts residents, and from their workers who are not residents of Massachusetts but who perform all their regularly assigned duties in Massachusetts. For more information, please see TIR 93-6, Employees of Interstate Motor and Rail Carriers.
What other types of withholding are required?
Venues, promoters or others who pay compensation to performers or performing entities are required to withhold on payments for athletes and entertainers who perform in Massachusetts. For more detailed information, please see A Guide to Withholding Taxes on Performers and Performing Entities .
In addition, lottery winnings of $600 or more are subject to withholding even if withholding is not required under IRS guidelines.
Pass-through entities may be required to withhold on their members' distributive share. For more information, please see A Guide for Pass-Through Entities.
What information does an employer need to obtain from an employee for withholding purposes?
An employer needs to obtain the employee's full name, home address, Social Security number, the total number of exemptions, and any additional withholding amounts the employee requests to have withheld. Employees must report this information on an Employee's Withholding Allowance Certificate and on a Massachusetts Employee's Withholding Exemption Certificate (Forms W-4 and M-4). Claiming the proper number of exemptions prevents over- and under-withholding.
Should employees complete both Forms W-4 and M-4?
If the allowable Massachusetts withholding exemptions (see Form M-4) are different from U.S. withholding exemptions, employees must complete both Forms M-4 and W-4 for the most accurate withholding.
Can an employee change the number of his or her exemptions on Form M-4?
Yes. An employee may file a new certificate at any time if the number of exemptions increases. An employee must file a new certificate within 10 days if the number of exemptions previously claimed decreases.
How does an employee with two or more jobs calculate exemptions on Form M-4?
If an employee holds more than one job, he or she may claim exemptions only with his or her principal employer.
Can employees ask employers to withhold extra amounts of tax?
Yes. Employees who receive income that is not covered by withholding may request that their employer withhold additional amounts to pay the tax that will be due on that income.
Should an employer withhold on income from tips?
Yes. In accordance with federal tax rules, tips are considered to be part of an employee's pay and must be taken into account when determining the withholding amount. Employees must report tips from any one job totaling $20 or more in any given month to employers by the 10th day of the following month. The employer uses this reported amount to calculate withholding by adding the reported tips to the employee's pay.
What are taxable wages?
Taxable wages include all compensation to an employee for services performed. Payments subject to Massachusetts withholding include wages, salaries, tips, commissions, bonuses, fees or any other item of value paid to an individual for services performed as an employee.
Are payments to employees for traveling or other reimbursable business expenses subject to withholding?
If such expenses are substantiated by the employee, and the amount in excess of the substantiated expenses is returned to the employer, then these payments are not subject to withholding. Such payments must be identified either by making a separate payment or by indicating the separate amounts if both wages and expense allowances are combined in a single payment. If the employee is not required to substantiate expenses or return excess payments, the payments must be included in the employee's wages, and are subject to withholding.
How is withholding calculated?
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 the Massachusetts Employee's Withholding Exemption Certificate (Form M-4). Withholding 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, which are explained in Income Tax Withholding Tables, ( Circular M ), may be applied on a daily, weekly, biweekly, semimonthly or monthly basis.
How do the withholding tables work?
The withholding tables provided in DOR's Circular M factor in the employee's wages for an applicable payroll period, the number of withholding exemptions claimed by the employee, and any additional withholding amounts requested by the employee on Form M-4 to determine the correct amount to withhold.
Example: Steve earns $565 a week as a construction worker. His wife Debby works full-time in real estate. They have three children, ages 14, 11 and 8. Steve and Debby decided to claim the exemptions for their children on Steve's M-4. Following is a copy of Steve's Form M-4. He is allowed a total of five exemptions: one for himself, three for his children, plus an additional exemption for having at least one child under age 12.
Steve's employer uses this information to calculate the correct amount to withhold from his weekly paycheck. Using the weekly table in Circular M, his employer withholds $19.44 from Steve's weekly paycheck.
An additional reduction of the withholding amount occurs if the taxpayer is filing as head of household and/or either the taxpayer or the taxpayer's spouse is blind. The withholding table amount should be reduced as follows if the taxpayer is filing as head of household and/or the blindness exemption is claimed:
Head of household
|* These amounts should be doubled if both the taxpayer is blind and the taxpayer's spouse is blind and not otherwise subject to withholding.|
What is the percentage method?
The percentage method is a mathematical formula for determining withholding amounts. This method is used primarily by businesses with automated payroll systems. The percentage method is calculated as follows:
- Determine employee's wages for the payroll period (weekly, biweekly, etc.).
- Subtract the amount deducted for Social Security (FICA), Medicare, Massachusetts, U.S. or Railroad Retirement contributions (up to an annual maximum of $2,000).
- Subtract the exemption amount (from the following table). If no exemptions are claimed, the exemption amount will be $0.
- Multiply the result by the current rate.
Note: For tax year 2012, the tax rate is 5.25 percent.
The exemption amount is based on the number of withholding exemptions claimed and the applicable payroll periods. The following table details the exemption amount calculation:
|Payroll period||Exemption amount calculation|
|×||number of exemptions claimed||+||$9|
|×||number of exemptions claimed||+||$66|
|×||number of exemptions claimed||+||$131|
|×||number of exemptions claimed||+||$141|
|×||number of exemptions claimed||+||$284|
|×||number of exemptions claimed||+||$3,400|
Example: Nancy works as a paralegal and earns $350 a week. She claims four exemptions: one for herself, two for her children ages 3 and 6, and one more for having at least one dependent under age 12. Nancy's state withholding, using the percentage method, is based on the following calculation:
|Social Security (FICA) and Medicare|
|Exemption factor (19.00 ×4) + 66.00|
An additional reduction of the withholding amount occurs if the taxpayer is filing as head of household and/or either the taxpayer or the taxpayer's spouse is blind. When using the percentage method to calculate withholding, reduce the amount withheld according to the table if the taxpayer is filing as head of household and/or the blindness exemption is claimed.
What are the requirements for filing and paying withholding?
Different schedules must be followed for filing returns and paying over withholding depending on the total amount of tax you expect to withhold from your employees in a year. The following chart lists the filing and payment requirements.
|Projected annual withholding tax collected from all employees||Return filing requirement||Payment due|
|$100 or less||Annually due by January 31 of the following year|
WebFile for Business or Form M-941A.
|Payment due with return.|
|$101 up to $1,200||Quarterly due on or before last day of month following close of calendar quarter, i.e., on or before April 30, July 31, October 31 and January 31.|
WebFile for Business or Form M-941.
|Payment due with return.|
|$1,201 up to $25,000||Monthly due on or before 15th day of following month except for the payments for March, June, September and December - these are due on last day of the following month.|
WebFile for Business or Form M-942.
|Payment due with return.|
|More than $25,000||Quarterly due on or before last day of month following close of calendar quarter, i.e., on or before April 30, July 31, October 31 and January 31.|
WebFile for Business.
When Massachusetts income tax withheld is $500 or more by the 7th, 15th, 22nd and last day of a month, pay over within three business days thereafter.
What are the electronic filing and payment requirements?
Employers and businesses with a combined annual liability for withholding, sales/use tax (including sales tax on meals and telecommunications services) and room occupancy excise of $5,000 or more are required to file returns and make payments electronically. Once the tax liability reaches the electronic filing threshold in one year, the business must file and pay electronically in all subsequent years, regardless of the amount due, as long as it has an obligation to file one of these three categories of taxes in Massachusetts. Also, all returns with no tax due are required to be filed electronically, regardless of the amount of the business's total tax liability. All new businesses and existing businesses applying for an additional registration must file and make payments electronically, regardless of the amount of their annual tax liability. All payroll service providers (third-party bulk filers) are required to file and pay withholding taxes electronically for all returns. All performer withholding returns and payments must be made electronically.
How do I submit returns and payments electronically?
Employers may file returns and make payments electronically through DOR's secure Web-based application, WebFile for Business.
Employers and businesses must register with DOR in order to use WebFile for Business. Instructions for registering to use the application are provided on the DOR website.
For more information on electronic filing, see TIR 04-30, Revised Electronic Filing Requirements; TIR 05-22, Modified Electronic Filing Requirements; and TIR 10-18, Electronic Filing Thresholds Modified.
How can I assure timely filing?
An electronically filed return or report is deemed timely filed if electronically submitted on or before the due date, before midnight Eastern time, with all required information accurately entered. Upon submission, the filing entity will receive a confirmation number and time-and-date stamp, which constitute the substantiating date mark providing proof of time and filing date.
In order to be considered timely filed, a paper return must be received by DOR on or before the due date, or if delivered after the due date, it must be postmarked by the U.S. Postal Service or date-stamped by a private delivery service at least two days prior to the due date.
What are the interest and penalty charges for late returns and payments?
Withholding tax returns that are not filed on or before the due date are subject to interest and penalty charges.
If you fail to pay the tax when due, interest will be charged at the federal short-term rate (which can change quarterly) plus four percentage points, compounded daily. If you wish to obtain information on these rates, please call DOR's Customer Service Bureau at 617-887-MDOR or toll-free in Massachusetts at 800-392-6089.
The penalty for late payment is one-half of one percent of the unpaid tax shown on the return per month (or fraction thereof), up to a maximum of 25 percent.
The penalty for failure to file a return by the due date is one percent of the balance due per month (or fraction thereof), up to a maximum of 25 percent.
Are there any other penalties?
Yes. Businesses with annual withholding liabilities in excess of $25,000 who fail to make timely deposits of withholding tax are liable for a 5 percent penalty on the amount of underpayment.
The amount of underpayment is any portion of a tax payment or weekly deposit that was not paid on time.
Willful tax evasion is a felony punishable by a fine of up to $100,000 for individuals or $500,000 for corporations and/or imprisonment of up to five years. Willful failure to collect and pay over taxes is also a felony and is punishable by a fine of up to $10,000 and/or imprisonment of up to five years.
Taxpayers who do not comply with the requirements to file returns, make payments or submit data to DOR in an electronic format will be subject to a penalty of up to $100 for each return, payment or data transfer submitted incorrectly to DOR. Please refer to TIR 04-12, Penalty for Failure to File, Report or Pay in the Prescribed Format, and TIR 04-30, Revised Electronic Filing Requirements, for more information.
Must a return be filed even if no tax was due for a given period?
Yes. A return must be filed for all periods even when no tax is due - just enter zero in the appropriate places. Filing each period is necessary for DOR's record keeping purposes. It also will help avoid requests from DOR for filing information. Please note that all returns with no tax due must be filed electronically. For more information, please see TIR 04-30, Revised Electronic Filing Requirements.
How can withholding payment errors be corrected?
If you make a withholding payment error, corrections must be made as follows:
- Adjustments for an underpayment of withheld taxes for the immediate prior period within the same calendar year must be made through WebFile for Business (or on Line 2 of the current period return, if the employer is not required to file electronically) and submitted with payment for the additional amount.
- Underpayments occurring before the immediate prior calendar period must be adjusted through WebFile for Business or on an Application for Abatement/Amended Return ( Form CA-6) along with payment for the additional amount.
- Refunds of overpayments of taxes withheld must be requested through WebFile for Business or by submitting an Application for Abatement/Amended Return ( Form CA-6) along with a copy of the appropriate documentation substantiating the overpayment.
Please note: If you electronically filed a withholding tax return, you must file any amended return or abatement application electronically. However, if the return was a zero tax due return filed by touch-tone telephone, you may file a paper Form CA-6 .
Which withholding records should employers retain?
Records retained should include:
- The name, address, occupation and Social Security number of each employee;
- The amount and date of all payments of wages, the period of services covered by such payments and the amounts of tax withheld;
- Employees' statements of tips received;
- Employees' withholding exemption certificates (Forms W-4 and M-4);
- Employer's copies of employees' Wage and Tax Statements (Form W-2); and
- Copies of all withholding returns filed with the Department.
How long should withholding records be kept?
It is the employer's responsibility to retain all records pertaining to withholding for at least three years after the date the return was filed or the date it was required to be filed, whichever is later.
You also should know that there is no limitation on the period for which DOR may request records if an employer failed to file a return or filed a false or fraudulent return. For more information about retaining records, please see Regulation 830 CMR 62C.25.1, Record Retention.
Is there a penalty for failure to provide W-2 forms to employees?
Yes. Employers are required to provide each employee with a Form W-2 by January 31. An employer who either fails to provide an employee with a Form W-2 or issues a false Form W-2 may be fined up to $1,000 and/or imprisoned for up to one year.
Are employers required to file W-2 information with DOR?
Employers who have 50 or more employees must provide DOR with Forms W-2 in a machine-readable form. This information must be filed with the Department by the last day of March for the preceding year. The most current format is available on the DOR website. Machine-readable form includes file uploads through WebFile for Business and electronic data transfer.
Employers with fewer than 50 employees are encouraged to file Forms W-2 in a machine-readable form. For more information, please see DOR Directive 07-2, Requirements for Employers Filing 2006 and Subsequent Year-end Withholding Information.
Employers that have fewer than 50 employees must file W-2 information with the Department on paper if they do not file this information in a machine-readable form. Paper Forms W-2 and Reconciliation Forms M-3 or M-3M must be filed on or before February 28 following the close of the calendar year.
Are employers required to file any other wage-related information?
Yes. By law, every employer who is required to deduct and withhold taxes on wages must submit quarterly wage reports. Wage reports are filed through the Massachusetts Department of Unemployment Assistance QUEST program. The purpose of the wage reporting system is to verify eligibility for programs such as Welfare, Medicaid, unemployment compensation and workers' compensation. In addition, it is used to help track down parents who fail to pay the child support they owe. Requirements under this system are separate from requirements to submit income tax withholding forms.
Employers also must report to DOR all newly hired employees, employees returning to the payroll, and independent contractors within two weeks of an employee's first day on the job.
An employer who fails to comply with the wage reporting requirements may be liable for financial penalties.
Where can employers get more information about wage reporting?
For more information about wage reporting, employers may contact the .
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 27, 2012. 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.